What is financial statement analysis? Methods of financial analysis of data

The modern market is changing rapidly every day as technology advances and new requirements emerge. To assess these trends and make informed business decisions, organizations need to perform financial statement analysis. This process enables leadership teams to develop brand visions and goals and create financial policies. It also helps companies make better investments and protect their bottom line.

What is financial statement analysis?

Financial statement analysis is the process of evaluating a company’s financial resources and market value. It involves looking at historical data to get a view of a company’s financial health in real time. These datasets include sales, purchases, and consumer information. Most organizations will also make use of their analysis of financial data to calculate their profits and predict their future. The following factors explain why corporate financial analysis is important.

  • Analytics helps managers and high-level teams make important decisions
  • Companies can make well-informed and sound financial plans and projections
  • Teams can develop new business models that align with changing finance and new technologies
  • Existing trading strategies are enhanced with data-driven insights
  • Evaluating financial statements along with predictive analytics will highlight opportunities to improve profitability and fuel cash flow.
  • Teams will gain insight into how they measure and manage their assets and capital
  • Organizations can reduce wasteful expenses and implement techniques to increase revenue

Documents financial analysis of data

Many small businesses use data to understand their various departments, and 56% use it for financial purposes. Organizations that want to perform successful financial analyzes need to evaluate different types of financial statements. Here are three critical statements upon which the analysis is based.

balance sheet

details balance sheet All the resources available to the company during a given period. Specifically, the balance sheet discloses Assets and non-current assets. It also shows short-term liabilities and long-term debts. This information will help team leaders understand the current financial situation of the company.

Income statement

The income statement is one of the primary financial documents of a company. It highlights the financial performance of the business over a specific period of time. The main details of the income statement include the income earned, the number of expenses incurred, and the net income. With this information, business owners can predict their financial future and evaluate the process of achieving goals.

Statement of cash flows

The cash flow statement shows how much cash a company has at its disposal during a given period. It also shows the output of money in action. This helps teams understand the company’s billings, as well as its overall financial growth.

Elements of financial health in analyzing financial statements

When using data analytics to assess the financial health of a business, it is important to evaluate liquidity, leverage, and profitability. These internal factors cannot be controlled by the company. So, by understanding these elements, teams can improve their decision-making and protect their finances.


Liquidity refers to the amount of cash and assets a company has to pay its expenses, such as bills and debts. In general, all businesses will need a set amount of cash to be able to pay their expenses. When a brand has a low level of liquidity, it means that the company lacks capital. This also shows how the company shows poor performance in the market.

In general, liquidity levels change over different periods of time. Factors such as sales, seasonality and economic fluctuations will favor the development of liquidity. The cash flows within the company will also change and affect liquidity.


Leverage is the amount of money a company has borrowed from third parties to purchase inventory and other assets. Investors and bankers consider leverage to be an important factor in a company’s finances.

Organizations will have a higher leverage ratio when their debt exceeds equity. This means that the brand is more vulnerable. However, these risks may increase the rate of return. For example, a restaurant that borrows capital to finance an industrial furnace can increase sales because it produces more goods.


Profitability measures a company’s ability to generate profits over a period of time through its sales. It also indicates the efficiency of the company that can create value for its shareholders. Many factors can affect profitability, such as market prices, consumer trends, and assets. A company’s current debts and expenses can also affect the overall profitability of a brand.

How is a company’s financial analysis performed?

To carry out the financial analysis of the company, it is necessary to paraphrase its accounting documents In order to show her financial condition. This is a financial diagnosis. Thus, the analysis is based on the balance sheet, income statement, and company attachments. These documents can be found in the annual accounts or in the tax return.

In addition to these studies, some analysts initially focus on assessing the entire economic sector of the company. To do this, they analyze the company’s positioning, its strengths, as well as its weaknesses and strategy. This data is then studied by a more marketing-oriented aspect than accounting. This is called an economic diagnosis.

In order, we find the following steps:

  • Studying the company’s market (sector, competitors, risks, possibilities, etc.).
  • Analysis of the company’s production
  • Company distribution analysis
  • Study the formation of the result
  • Analysis of the financial structure and assets
  • Measure profitability

There are several sources from which information can be found to perform a financial analysis, some internal to the company and some external.

In the event that a financial analysis is carried out internally or at the request of the company, the main source of information is the company’s information system. Indeed, thanks to automated dashboards, economic and accounting monitoring, and company management tools, it is easy to refer to data of interest for a particular issue.

When you are a third party to a company that wants to conduct a solvency study, then it is necessary to find information about the company’s accounts. It can be easily found through three channels:

  • Online: Today there are many sites that specialize in collecting business data, which sometimes also offer calculations and information reprocessing systems to simplify analytics.
  • In the commercial court record: Since companies are required to submit their summary documents to the commercial court registry they rely on, a lot of information is gathered there.
  • Via the central balance sheet: It is an organization that collects the economic and financial documents of companies. This information pertains only to companies that choose to participate in the centralization of these documents.

It should be noted that not all countries operate by the same rules and that in some countries, it is not mandatory for companies to publish their accounting statements. This is why information is more complex to find during external analytics.

What are the tools used in analyzing financial statements?

The most commonly used tools for performing financial analysis are tables and ratios. They make it possible to isolate certain data to break down the data included in the accounting documents.

As explained above, since financial analysis is not a legal obligation, there is no rule to be followed in the way it is carried out. Thus each analyst can follow his own method.

Analysis tables

Some tables allow, based on numbers from the income statement, to view certain data in greater detail.

We find in particular the table of intermediate management balances. In particular, it is allowed to display the following data:

  • production,
  • Value Added,
  • trading margin,
  • gross operating surplus,
  • the ability to self-finance,
  • financial score,
  • running result,
  • The extraordinary result
  • accounting result.

You can also extract additional information by creating tables from the balance sheet data. In this way, the balance sheet can be reorganized to create a functional balance sheet that more clearly shows the company’s investment policy, operations, and cash flow.

Ratio analysis

Rewording accounting documents also makes it possible to calculate several ratios that also serve as more detailed indicators of a company’s financial health. We can mention:

  • margin rate,
  • mark rate,
  • debt ratio,
  • Rate of Return ,
  • economic profitability,
  • percentage of financial independence,
  • financial rate of return,
  • solvency ratio etc.

Challenges of financial analysis of data

In many ways, CFOs find themselves pursuing two opposing goals. As an essential part of cost management for a business, finance must deal with the strict imperatives of cutting expenses and stagnant budgets. However, at the same time, increasing regulatory and administrative requirements require CFOs to provide unprecedented levels of financial transparency and decision support.

CFOs are called upon to incorporate big data when their department is arguably not in complete order…or at least not sufficient to provide the necessary insights in a detailed, actionable form. Too often, the CFO relies on a set of unnecessarily complex and disconnected financial systems that require manual error correction and validation.

This can lead to inconsistent or inaccurate reporting of results, as well as internal “data conflicts” that occur when different divisions have different definitions of revenue, gross margin, or selling costs. The ensuing discussions delay management decisions and affect their quality.

As responsible for the financial statements that are sent to regulators and external stakeholders, the CFO must intervene and advocate for good data management practices that resolve disputes regarding any information that has an impact on the financial statements. This is the only way to ensure that the company can operate with a unified, reliable and transparent view of its overall performance.

The CFO needs unparalleled analytical tools, as public ledger data is no longer sufficient to meet the transparency demands of regulators and stakeholders. Financial, management and regulatory reports require a greater level of detail (Accounts receivable AndInventory and Accounts Payable, for example) more than in the past, as well as being able to incorporate increasing amounts of non-financial data (eg collateral, suppliers, customers).

With the right infrastructure and data-driven focus, a CFO can better assist in Make decision in all areas of work. One of the main tasks assigned to the Finance Manager is to improve the order-to-cash and purchase-to-pay processes.

Meeting this challenge requires establishing detailed links between Financial Statements and sub-accounts, which are located in General ledger. Not only does this requirement fit well with the traditional role of the Chief Financial Officer, but it is often a natural progression in the growing number of organizations in which the CIO reports to the CFO.

Key capabilities of financial data analytics

To become a data-driven department, the CFO must work with IT to make a multi-stage evolution toward a streamlined financial systems architecture that eliminates redundancy and promotes integration and automation as much as possible.

By bringing together all the different sources of financial data—point-of-sale terminals, customer billing, mortgage systems, commercial or in-house developed ERP systems, accounting centers, or rule-based cost allocation calculation engines—into one integrated data warehouse, you can become CFO organization more efficient.

Many financial services firms achieve this by reviewing the architecture of their financial systems on five axes: agility, sustainability, scalability, predictability, and traceability.

  • agility: The CFO’s ability to respond to and encourage change.
  • Sustainability Financial analysis based on a decision-making environment that can be constantly updated and adapted with minimal effort.
  • Extensibility: Design architectures that focus on future types of data that, when combined with native data, will unlock additional business value.
  • Predictability: How revenue and costs interact, giving the CFO detailed operational insights to identify and pursue priority activities that can improve future profitability and help avoid unnecessary costs.
  • tracking: A framework that coordinates strategy and execution within the company with the guiding objective based on agreed realities through a common set of indicators.

In conclusion

Financial statement analysis involves evaluating the financial resources and the overall value of the business.

Conducting a financial analysis to understand a company’s financial health can highlight many opportunities, such as improving decision-making.

Many companies benefit from their access to data by learning about their finances.

When conducting financial statement analysis, companies should review their balance sheet, income statement, and cash flow statement.

To assess an organization’s financial condition, sales teams must consider three key elements. These factors include liquidity, leverage, and profitability.

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