Financial analysis is a key tool for business owners, allowing not only to assess the current state of affairs, but also to identify hidden reserves for improvement. Many owners rely on a magical way to grow and scale their business, while correct analysis helps to transform the company’s weaknesses, turning them into growth points. Management accounting data plays a decisive role in this process.
Sources of information
Management reporting provides more relevant data than accounting, since it is formed more often and adapts to the needs of management. This makes it indispensable for analysis not only at the end of the year, but also in online mode.
Define key metrics
For an effective analysis, select up to ten key indicators that take into account the unique features and goals of your company. This could include a cost-effectiveness assessment to identify profitable products or a solvency analysis to assess credit risks.
Calculation method
Use simplified calculation methods for internal purposes in order not to complicate the process. There is no need to go into the construction of overly complex tables and dashboards. However, as a recommendation for compliance with banking and financial conditions, indicators should be calculated using the methods specified in loan agreements.
Business diagnostics
Compare actual results not with book ratios, but with targets based on approved budgets. This allows you to take into account the specifics of the company and market conditions, avoiding false conclusions.
Important analysis indicators
- Net assets. They help to estimate how much own funds will remain after the repayment of all obligations.
- Current liquidity ratio. It evaluates the solvency of a company.
- Financial stability ratio. Indicator of debt burden and stability in the future.
- Return on sales. It confirms the ability of the business to generate profit.
- EBITDA. It assesses the efficiency of work and the level of debt load.
- Margin of financial strength. It shows how declining sales will affect business viability.
Analysis conclusions
When identifying deviations from the target, it is important to understand their nature. This can be a temporary phenomenon caused, for example, by an investment program, or a steady trend requiring intervention. It is important to develop concrete proposals to improve the situation.
Data presentation
It is important to visualize the results of the analysis using color-coded charts: green for success, yellow for tolerance, and red for critical areas.
A properly conducted financial analysis will allow owners not only to identify current business weaknesses, but also to develop a strategy for future growth and sustainability.
Case studies
Take the example of a construction holding company that uses key indicators to analyze its activities. This allows it to monitor operational trends and make informed decisions on investment and resource allocation. After conducting monthly and quarterly inspections, the company assesses efficiency not only by financial statements, but also by specially selected indicators.
Practical recommendations
- Business segmentation. Categorize your products or services and analyze their profitability. This will help determine which areas are worth developing and which may be worth closing or transforming.
- Cost analysis. Conduct a detailed study of all costs and highlight areas where you can reduce costs without losing quality. Innovations such as automation can significantly reduce costs.
- Risk assessment. Analyze external market and internal metrics to respond quickly to changes. Create scenarios and strategies to be prepared for any situational turns.
Strategic application
Financial analysis is not only a control tool, but also a growth strategy. With its help you can:
- Increase investment attractiveness. Optimization of financial flows and asset management make the company more attractive to investors.
- Strengthen competitive positions. Understanding internal processes and optimizing them allows you to offer customers the best conditions, helping to strengthen your position in the market.
Using financial analysis to change weaknesses in a company to growth points requires a systematic approach, reliable data and knowledge of the specifics of the industry. Approach this process with attention, and you can provide your business with sustainable development and a successful future.
Conclusion
Financial analysis, if properly realized and interpreted, becomes an integral part of a successful business strategy. It translates financial data into concrete actions needed to strengthen the business in the market, attract investment and create a solid foundation for further prosperity. This process requires a systematic approach and a deep understanding of operations, making it a critical resource for anyone looking to grow their business sustainably.
By Dmitry Shumeyko, head of the accounting company “Shumeyko and Partners”