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What is Financial Analytics?

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  • Written By: Simone Lawson
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  • Last Modified Date: 30 September 2016
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Financial analytics is a set of tools or a system that can be used to increase a company's financial productivity, specifically its profitability. It works through assessing individual or granular aspects of a business opportunity and then combining all relevant information so that an overarching, financially beneficial decision can be made. It allows business executives to proactively seek out ways to change and enhance their business models so that they are constantly up-to-date with the current financial environment.

A financial analytics system requires the integration and assessment of a broad spectrum of data that affects, or may potentially affect, a company. Some particular aspects that the system may take into account include which customers provide the company with the most profit, how the company's customer-base spread out geographically, and which product brings in the most profit. Once the data has been collected, it can be displayed in charts or graphs so that complex and diverse information can be visualized more easily.

Beyond obtaining vast stores of relevant, up-to-date data, financial analytics also seeks to analyze this data and determine why certain trends occur. This analysis can help companies predict what the financial environment will be like in the future. Only then can action be taken, if necessary, to improve financial productivity. For example, a company may decide to reallocate resources for funding new marketing campaigns in areas that have been financially unresponsive to products.

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Traditionally, businesses have relied solely on general ledger systems for storing and analyzing financial data. More recently, continuous technological advancements and evolving business models and processes have made these static systems less and less effective in helping increase financial productivity, as they do not take into account external data and future events. Many financial executives are adopting financial analytics as a solution to these problems.

As individuals gradually shift from using old business models to newer ones, the need for financial analytics will continue to grow. Online transactions, such as business-to-employee, business-to-consumer, and business-to-business transactions, are growing more and more popular and changing the fundamentals of the game. As a result, intangible assets, such as research, information, and analysis, are becoming increasingly valuable for increasing productivity.

Companies in need of assistance with financial analytics have two general options. One strategy is to hire an analytics firm to come on site and work closely with accountants, managers, and executives to help gather and analyze data and then form an effective business plan. Another, less expensive option is for companies to use a financial analytics computer software program.

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SarahSon
Post 5

I work in market research and spend quite a bit of time studying customer analytics. This is a very interesting field and it changes depending on what type of business you are in.

It can be hard for many small business owners to realize the benefit of investing in financial analytics. If they are on a really tight budget and barely making it, this seems like an unnecessary expense.

If they can't afford to hire a professional to help them, there are many business management software programs that would be really helpful.

Personally, I don't see how anyone can have a successful business, no matter how big or small, if they don't invest in knowing the financial analytics of their company.

golf07
Post 4

There is nothing like looking at something on paper to get a true picture of what is going on in a company.

When I purchased some business analytics software for my company, I really didn't think it would be that helpful. I felt like I kept a close eye on my business and knew what was bringing in a profit and what wasn't.

After I looked at the results and the information, I realized I was not as accurate as I thought I was.

One of the areas this software showed me where I needed to make changes was the money I spent on marketing. I didn't need to spend more on advertising, but I needed to change how I did this.

Most people don't look up information in the phone book anymore, so I cut back on this advertising and invested in areas that were more up to date.

andee
Post 3

I own a small boutique and there are many factors that are responsible for a successful business.

With a small business like this, it can be hard to determine what services to invest money in and which ones are a waste of money.

There is no shortage of people calling me and soliciting their services - all promising me a good return on my investment.

I can't afford to hire a firm to come and put this together for me, but I did purchase some business analysis software.

This is a user friendly program that allows me to enter my numbers and information. Not only does it show me where I am at currently, but also gives

me projected values which I have found to be very helpful.

The business world is always changing, so even though not everything will remain constant, this gives me goals to work towards and helps keep me focused.

It is easy to get off track, but if I can remain focused on what is actually making the most profit, that is where I can concentrate my efforts.

sunshined
Post 2

My son works for a marketing firm and works with companies setting up their marketing and advertising campaigns.

He enjoys the creative marketing aspect of his job, but also spends a lot of time studying charts, graphs and trends.

This gives him a general idea of what has worked in the past, what may work in the future and what they should quit spending their money on.

There are many times a company will use the services of a marketing firm and financial services analytics. This gives then a good overall picture of where they need to put their money for the most profitable return.

It seems like the more they study and become familiar with the financial analytics, the more profit they make. This isn't always seen right away, but when they look back over the course of 6 months to a year, they often see a big difference.

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