6 Basic Financial Analytics to Predict the Future Trends      

6 Basic Financial Analytics to Predict the Future Trends

6 Basic Financial Analytics to Predict the Future Trends

By Angelina Smith | Articles | August 10, 2020

Financial analytics is a complete system that includes the use of several tools to improve profitability as well as the productivity of any organization. In today’s times, when the business world works on different kinds of data, analytics play an integral part in keeping you ahead of your competitors. Financial analytics help companies understand their current performance and compare their past performance too. Along with that, it also anticipates future performance and helps in making sensible business decisions.

Basically, financial analytics collects and analyzes the company’s financial data to comprehend the different facets. With the usage of graphs, statistics, and tables, the collected data is compared and displayed to give a visual presentation of the complexities of the business and help in recognizing the past, present, and future at much ease. But why is financial analytics important for any company? The analytics help predict the company’s past behavior, present methods adopted, future trends, and encourage the firm to grow on the basis of different predictions. It even helps in rescuing the company from unwanted risk factors present in the future.

Let us seek a detailed insight into the six basic financial analytics that help in predicting future trends for any enterprise.

Predictive Analysis of Sales (PSA): 

Sales are the most crucial aspect for any company. The future of any firm lies in the revenue digits it generates. When a company adopts the PSA approach, they can easily foresee the sales figure for a future month. The predictive analysis helps in anticipating whether the sales will rise or drop for the coming month. Basically, PSA is the sales forecast system that aids in improving marketing strategies for the coming period to improve the sales digits. Companies believe in the magic of PSA as it provides healthy competition and emphasizes on effective planning. To achieve a smooth workflow and a prosperous future, sales predictive analysis works best. Product profitability analytics, as the name suggests so, is a method of identifying areas of generating profits by an individual product or service, rather than seeking profit estimate of the whole business. To do so, companies need to assess each product with a keen eye and evaluate their cost separately.

This may not be as smooth as it looks, due to some products sharing the cost of production. However, you need to ensure to find a fair and reliable way to evaluate the cost of individual products. PPA helps companies uncover profits to make better decisions in the future and protect each product’s growth along the way. For instance, if you analyze that one product is making more massive profits than most products together. Then you might wish to promote that product in a better way to elevate its profit scale. Therefore, once you know the most profitable product of the lot, you will also know the customer preferences. It will ease your product strategy building sessions.

Customer Profitability Analysis (CPA):

Who is a potential customer? It is essential to know the difference between the customer who makes a profit and who doesn’t. Another factor that you must know is which customer adds value to your company and adds risk to your company. These categories decide the quality of customers your company holds and also decides the future progress. For any company, recognizing the client type is very critical. Your marketing efforts can be made based on customers. CPA or customer profitability analysis helps companies analyze their customer’s behavior.

CPA works on an 80/20 rule, where 20 percent of your customer base is accountable for your 80 percent of company profits, and 20 percent of your customer is accountable for 80 percent of your customer-related costs. This helps analyze the profitability of each customer group and how to extract useful insights from them. For instance, you may analyze that most of your permanent customers made their first purchase due to a particular marketing campaign that attracted them. This will help you analyze your best customers’ choices and preferences and direct your future efforts accordingly.

Value Analysis for Shareholders (SVA): 

Value analysis of your business is based on the revenue returns that your shareholders receive from your business with the help of SVA or shareholder value analytics. These financial analytics tools help in determining the risk and value percentage for the shareholders. The evaluation of income and earnings is better with SVA. It is a basic calculation of the value of a company business made on the basis of the sales, income, and returns it provided. SVA should be frequently used to measure the business growth level.

Cash Flow Analysis (CFA): 

Any business requires day-to-day cash for running the office, such as wages, electricity bills, stationery, etc. It might seem non-essential. However, one must know how the money is moving in and out of business and for what cause. CFA includes indicators like a cash conversion cycle or a working capital percentage to analyze your business’s expenditure. CFA helps predict the inflow and outflow of the capital, future investments, and the amount you need to pay for smoother business operations.

Value Driver Analytics (VDA): 

Most companies have set the objectives straight as to where they are heading in the present and what they expect to achieve in the future. Value driver analytics help companies in deriving their future goals by properly nurturing the financial disturbances of present times. VDA tools also help in analyzing the strategic drivers for your companies to achieve the aspired results. With the help of VDA, you can assess future progress.

Concluding Note: 

With the best access to financial analytical measures, customer profitability, value analytics, functional KPI’s, and sales, you can help your organization elevate its shareholders’ value and incomes. Financial analytics help in understanding the hindrances and ways to overcome them to get more significant final results.

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