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What are the important and often missing essentials of financial analysis?

What are new staffers missing when it comes to their knowledge of financial analysis? It becomes easier for us as we progress in our career to read financial information and know what deeper questions to ask based on a cursory view of the reports. If you were to do one-on-one training for someone with little, or no, experience, what would you teach them?


Topic Expert
Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

1. Develop a curious mind-so you ask Why, get an answer, ask Why again..
2. Avoid arm chair or ivory tower analysis-get into the business, learn what actually happens in sales, operations etc before transactions hit the GL. Know the strategy and the business model
3. Check your work before you release it, always. Validate your assumptions early on, then again and again before you release your analysis.
4.Ask for peer/outside reviews of your drafts, be open to feedback of any style-develop a thick skin for when you are criticized.
5. When you think you are done, ask yourself "who is going to read this and what will they interpret from my work?" Treat your readers as customers who pay you for good work and won't pay for bad work.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Here is a key side note when talking to management as it relates to Len's number 2. To learn what actually happens requires the new (and for that matter old) finance members to actually spend time (not just visit for a few minutes) in each and every department to gain knowledge.

This is a hard sell when most people (sic; management) want instant analysis based on figures that have no meaning to the new (or old) person analyzing them.

Topic Expert
Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

And I am going to add:
6. The past is history, spend more time analyzing for the future to improve accuracy of projections. (That does not mean ignore historical info).

Sarah Jackson
Title: Associate Editor
Company: Proformative
(Associate Editor, Proformative) |

For anyone interested in financial analysis, here's a nicely informational white paper which breaks the subject down logically:

"8 Great Ways to Improve Your Quarter-End Analysis & Reporting"

You might also want to take a look at some of the 90+ Financial Analyst-relevant courses offered here at Proformative:

"Proformative's Financial Analyst Courses"

Best... Sarah

Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Looking for other sources of data. Are there relevant datapoints that we are missing? Can we capture these datapoints and can these datapoints give us more insight to what we are doing and what else can be done?

Usually, we only have a viewpoint of what we have. We can analyze the heck of what is in front of us but fail to look for other view/data points.

Nanda K. Kuppusamy CPA,CMA,C..
Title: Analyst
Company: RU
(Analyst, RU) |

At tactical level, I would teach them to perform trend analysis and look for exceptions and look for peaks and valleys.Compare costs to revenue and look for patterns.
One way to perform exception analysis is to do 80/20 reporting . 80% of exceptions can be explained by 20% activities.
Compare current trend to previous month or previous qtr.
You can also teach them to develop dash boards. One page summary showing all key indicators.
Of course the key analysis is to accumulate statistical numbers behind the $$$'s spent/earned and prepare cost matrix based on the statistics.

Paul Casey
Title: Finance Manager
Company: Allscripts
(Finance Manager, Allscripts) |

Knowledge of Financial Analysis when you are a Corporate Accountant on the inside of a large company under the CFO can be many things. For one on one training, I would suggest that one be clear on the objective of the financial analysis.

For example, forecast revenue for the coming quarter or year for a specific product line or division. This is a very specific question and we normally have some limited amount of time or resource to make the forecast. If you keep your objective in mind and then next figure out the deadline and the resources (historical sales, operation data, economic conditions etc) it will help you make decisions about making your forecast. I can forecast anything after 25 plus years of experience but the quality of the forecast depends on how much time, money and or resources were available to me to make that forecast.

My first step is to get some idea and come up with a range like "revenue could be from $1 million to $5.0 million" based on what I know off the top of my head. As I gather more information I may narrow it down to; "I think revenue will be $2.2 million plus or minus $300K". Most new professionals in finance have a hard time juggling the objective, the deadline and the available resource all at once because they are learning how to compile the forecast with logic and the data. With experience you gain the detailed knowledge and the big picture knowledge to do it competently and confidently.


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