Important Tools and Techniques for Financial Analysis

By Marianne Chrisos - Last Updated on October 25, 2018
Important Tools of Financial Analysis

Get the best financial analysis tools to better understand all the nuances of your financial foundation.

What are the most important tools to use in your financial analysis?

Having a solid understanding of your financial standing, from a personal or business perspective, is key to financial success. The right financial analysis tools and techniques can help you understand the risk of a financial investment or a realistic standing of your business’s financial position.

Smart CFOs know that technology has changed the landscape of financial stewardship, helping businesses engage more thoroughly with the financial data available. Understanding the financial situation of your business is not just a key to continued profitability, it’s useful in developing a strategy around business issues like hiring and staffing, product development, supply chain management, and business partnerships. Using the right tools in your analysis helps businesses obtain more accurate information, a more thorough and clear picture of financial positioning strengths and weaknesses, and allows CFOs and other finance officers to make more educated decisions.

Here are some important tools – both traditional and modern digital techniques – for you to consider in your financial analysis process.

Financial Statement Analysis

Financial statement analysis use reported financial information to better understand both the risk and profitability of a business. Using annual and quarterly financial reports, a business can look at the accounting ratios in areas that dollars have been spent, lost, or earned. Typically, this analysis looks at profitability, liquid and available financial assets, debt, and what the business would be valued at by an estimator. This helps a company to understand what its current position and potential are, as well as growth or loss over time.

Find Trends with Vertical and Horizontal Financial Analysis

Horizontal analysis shows every financial business asset as a percentage of another. For instance, online sales may make up 50% of total sales, while sales make up 60% of total revenue, with licensing feeds makes up the other 40%. This helps businesses chart exactly where money is being made and spent and how it all contributes to the whole.

Horizontal analysis is often referred to as “trend analysis.” It looks at the amount on financial statements from a year over year perspective. For instance, a vertical analysis report might show that the available cash for a business was 150% in 2018 of the available cash in 2008. This comparison perspective is helpful for businesses who want to get a sense of the differences in financial points of one year or point in time when compared to another.

Trend Percentage Analysis is like horizontal analysis in that it allows businesses to see the performance and financial metrics of one period as compared to another. This can help identify changes that are happening in a business and shape the direction of future changes.

Tools for Financial Analysis

Software and digital tools have not only allowed businesses to more accurately and quickly accomplish the tried-and-true methods above, but they can also help companies see more of their financial position.

There are lots of options available for businesses to consolidate and analyze their financial data in one tool, with choices for every budget and business-size. Some solid software financial analysis tools include:

  • NetSuite Financial Software: The NetSuite option allows you to combine your accounting and financial spend data in one place and see a clearer financial picture. Produced by Oracle and managed in the cloud, this software is reliable and good for businesses who need to scale their financial functions and growth over time.
  • ProvisionEPM Financial Reporting: This tool is best for large businesses enterprises and gives users the ability to combine real-time information from IT and accounting departments.
  • COGNOS: This IBM program is good for businesses that need to help with budgeting, strategic planning, forecasting, and consolidations. It’s a useful tool for understanding and comparing past sales and account activity and trends over time.
  • BodeTree: Bodetree is a great tool for small businesses. It features an easy-to-use interface that provides a lot of quality financial information through features like forecasting, valuation, financial statement examination, and strategy building.
  • IndustriusCFO: One of the biggest benefits of this tool is that it offers insight into industry competitors financials, helping you understand both your company’s financial health and its place in the competitive landscape of the industry.

Financial analysis is an important part of understanding a business’s performance over time and potential performance in the future. Understanding how and if your company extreme losses or gains give you a better understanding of if you can continue investing in products and technology or if there is a specific strategy that you need to take to help balance your financial ratios. Make sure your business finds the right financial assessment and analysis tools that are right for you, your goals, and your growth.

Marianne Chrisos | Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a company near Dallas and contributing writer around the internet. She earned her master's degree in Writing and Publishing from DePaul University in Chicago and has worked in publishing, advertising, digital marketing, and content strategy.

Marianne Chrisos | Born in Salem, Massachusetts, growing up outside of Chicago, Illinois, and currently living near Dallas, Texas, Marianne is a content writer at a c...

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