If your business needs a better understanding of its current financial condition, you must conduct a financial analysis.
By exploring critical financial insights, you can determine the strengths and weaknesses of your business, which will assist you in your planning and strategic decision-making.
In this article, we'll uncover financial analysis in greater detail, including types of financial analysis, best practices, and how intuitive financial analysis software supersedes boring spreadsheets!
Financial analysis is where financial statements and other relevant financial data are used to assess business health and performance.
A financial analysis will assess the following performance criteria:
Typically, it will leverage the right financial analysis tools and techniques for analysing financial data and use insights to recommend improving business performance and help you predict future performance.
Fathom's financial analysis software is aimed at forward-thinking businesses of every size and industry, powering insights for over 75,000 companies worldwide.
Conducting a financial analysis enables businesses to identify the strengths and weaknesses of their financial position and build a clear picture of their financial profile.
Financial analysis is vital for your business in identifying and preventing potential risks. You can also leverage analysis to build confidence amongst your investors and stakeholders, including banks and other finance lenders.
With a holistic view of your performance and the right financial analysis tools, you can make better-informed decisions about your strategy and plan for your future.
Financial analysis can lead to many necessary outcomes for effectively managing your business, including:
Financial analysts must implement best practices while they are at work. There is always the possibility that errors in large data sets can slip through the cracks without checks and balances in place.
Financial planning analysis best practices should include:
Even though financial analysis is critical to business decision-making, it has challenges. Some of these challenges can include:
A financial analysis combines several techniques to provide a holistic view of your business's financial performance and prospects.
Some of the most common types of financial analysis techniques include:
This section will explore each of these financial analysis types and how they can help your business.
Performing a scenario and sensitivity analysis is where a company assesses its best-case or worst-case future.
A scenario and sensitivity analysis helps businesses to measure risk exposure when preparing their budgets and forecasts.
Learn how scenario planning can help with risk identification and resilience building in our article: Preparing for the Unexpected: How Scenario Planning Can Help Business Stay Ahead.
A financial statement analysis can include an examination of one of three key financial reports:
A financial statement analysis can help businesses to understand their overall health and evaluate their financial performance and value.
Fathom's product feature for financial statements includes custom terminology. Please read our blog for a quick wrap-up of everything we've recently released.
A financial ratio analysis compares line-item data from your business's financial statements (income statements, balance sheets and cash flow statements) to show how you've performed over time.
Financial ratios can be compared with industry averages to show how your business compares with others in the same sector.
Rate of return analysis (also known as RoR) can be applied to the net gains or losses of any of your business investments over a specific period, including stocks, real estate, bonds, and more.
A RoR analysis is typically expressed as a percentage of its initial cost.
Businesses can use this type of financial analysis to compare their investment performance with previous periods and returns from other investments.
With financial analysis software, you'll have an in-depth look at your business's financial and non-financial data. These software solutions can aid financial planning, budgeting, forecasting (learn more about what is cash flow forecasting), risk assessment and reporting.
Some of the primary benefits of financial analysis software include:
The choice of financial analysis software will depend on your business's specific needs and goals. Still, Fathom will give you a clearer picture of your business performance and an in-depth analysis of your financials.
With Fathom's financial analysis software, it is time to say goodbye to visually boring spreadsheets that limit you because you need to extract and prepare data manually. Instead, you can explore and visualise real-time, interactive data.
Our financial analysis software will enable you to perform:
Fathom is the financial analysis tool of choice for over 75,000 businesses worldwide, who get an in-depth look at their financial and non-financial data.
So why not start with Fathom today and see what all the fuss is about? Start your free 14-day trial today, completely credit-card-free.