Charles Ethan Chua

ISBA106 – Business Analytics Application Accounting and Finance Analytics

Financial Analytics

In today’s highly competitive business environment, companies need more from Finance
than accurate financial statements and reports. They need forward-looking, predictive
insights that can help shape tomorrow’s business strategy and improve day-to-day
decision-making in real time.
It helps answer the questions:
 What is our risk exposure with specific customers, and how does each customer
relationship affect working capital?
 How can we streamline and enhance our business processes to make them more
efficient?
 Are we investing in the right opportunities based on capital and/or revenue, and
how do our business decisions affect our key value drivers?
 How profitable are my products and services across sales channels and customers?
 Which customer segments may offer the largest margins, now and in the future, and
how are those margins affected by the choices we’re making today?
 What future events could affect our stock price?
See into the future.
Provide forward-looking strategic insights, not just backward-looking financial reporting.
Turn mountains of data into nuggets of insight
Filter and analyze large amounts of data promptly and easily.
Put the pieces together.
Combine internal and external data to generate insights that weren’t possible or practical
before.
Paint a picture.
Present data and results visually so they are easier to understand and have more impact.
Take action with confidence.
Become a data-driven organization that makes investments and operating decisions with
more confidence and mitigated risk.
Be more strategic.
Boost the Finance function’s value and credibility as a strategic partner to the business.
Importance of Financial Analytics
Revolutionizing the Finance Industry

As stated in an article by Softweb Solutions:

https://www.softwebsolutions.com/resources/data-analytics-in-financial-industry.html

 Data analytics enables finance executives to turn structured or unstructured data

into insights that promote better decision making.
  Data analytics helps finance teams gather the information needed to gain a clear
view of key performance indicators (KPIs). Examples include revenue generated, net
income, payroll costs, etc.
 Data analytics allows finance teams to scrutinize and comprehend vital metrics and
detect fraud in revenue turnover. This is helpful since financial services experienced
a huge increase in digital fraud activity in 2020.

Types of Financial Analysis

 Horizontal analysis refers to the side-by-side comparison of an organization's

financial performance for consecutive reporting periods. The aim is to determine
major shifts in the data. Later, this information could be applied to a more detailed
analysis of financial results.
 Multi-company comparison entails tallying and comparing major financial ratios
of two organizations, usually in the same industry sector. The aim is to determine
the companies' relative financial strengths and weaknesses.
 Industry comparison contrasts the results of a specific business and the average
results of an entire industry. The purpose is to determine any unusual results in
comparison to the industry average.

How Financial Analytics Work

  Data is sourced from operational systems such as transactional, supply chain, and
CRM applications.
 This data is extracted, transformed, and combined into a repository such as a data
warehouse or data lake. Bringing together data from all your systems gives you a
holistic view of your business.
 Your financial analytics tool uses this data to allow you to perform a variety of
financial analysis such as predictive sales analysis, cash flow valuation, or actual vs
forecast analysis.
 Your tool also makes it easier for you to identify patterns and develop insights by
creating interactive visualizations and financial dashboards.
 The best tools go further by enabling you to perform augmented analytics and
predictive analytics, automated machine learning, embed your analytics into other
applications, and trigger alerts and actions in other systems.

Uses of Financial Analytics

 Predictive sales analytics may include the use of correlation analysis or past trends
to forecast corporate sales.
 Client profitability analytics helps differentiate between clients who make money
for a company and those who don't.
 Product profitability analytics entails assessing each product individually, rather
than establishing profitability overall at a company.
 Cash-flow analytics employs real-time indicators, including the working capital
ratio and cash conversion cycle, and may include tools such as regression analysis to
predict cash flow.
 Value-driven analytics assesses a business' value drivers, or the key "levers" the
organization needs to pull to achieve its goals.
 Shareholder value analytics, which is used to tally the value of a company by
examining the returns it provides to shareholders, is used concurrently with profit
and revenue analytics.
The Use of Analytics in Accounting

Data analytics are used by accountants to do things like discern patterns in customer
spending, identify market behavior, anticipate trends, and predict regulatory reactions.
Accountants who specialize in data analytics manage, analyze and mine multiple streams of
data. Doing so provides them granular-level details that can be used to answer questions,
identify patterns, and make fact-based predictions.

Importance of Accounting Analytics

1) Monitoring and Improving Business Performance

Every industry must regularly evaluate their Business Performance if they want to stay
profitable. Accounting Data Analytics can help to ensure that the company is running
smoothly, goals are being met, and performance is being maintained or improved. This
knowledge is critical for a company’s long-term viability and survival.
2) Improving the Client Experience
Data Analytics in Accounting can be used to improve Client Experience by examining
parameters such as the turnover of tax returns, the time it takes to perform an audit, or
general client satisfaction surveys. This can help the company to bring new clients and
improve the client Retention Rate. Retention Rate is one of the important business metrics
that refers to the percentage of clients retained by the company over a given period.
3) Identifying and Managing Risks
A Risk can originate from a multitude of sources both inside and outside the company.
Anyone in the Accounting department of a company must know how to deal with risk. Data
Analytics in Accounting can help in analyzing the areas of risk that are faced by the
company and use Predictive Analytics to make business decisions around specific risks.
4) Generating Higher Profit Margins
Data Analytics in Accounting can be used to uncover the behavioral patterns of your
customers. These patterns can aid businesses in developing Analytical Models, which can
then be used to discover investment opportunities and improve Profit Margins. Thus,
Accounting Data Analytics also helps in generating higher Profit Margins.
5) Cash Flow Analysis
Data Analytics in Accounting can also assist in tracking your Cash Flow and identifying
places where a company can reduce losses or invest profits more wisely. Thus, Accounting
Data Analytics has a profound impact in analyzing the Cast Flow and transforming the
business.
Common Tools Used in Finance and Accounting Analytics

Differences Between Accounting and Finance Analytics

1. Focus:
 Financial Analytics: Financial analytics primarily focuses on analyzing
financial data to extract insights and patterns that can guide decision-making
related to investments, risk management, and overall financial strategy. It
involves forecasting, modeling, and understanding market trends to optimize
financial performance.
 Accounting Analytics: Accounting analytics, on the other hand, centers
around analyzing accounting data and financial statements to ensure
accuracy, compliance, and transparency in financial reporting. It often
involves detecting anomalies, fraud, or errors within financial records.
2. Purpose:
 Financial Analytics: The main purpose of financial analytics is to support
strategic decision-making within an organization. It helps in assessing the
financial health of the business, identifying growth opportunities, and
managing financial risks effectively.
 Accounting Analytics: Accounting analytics aims to enhance the quality and
integrity of financial reporting. It focuses on ensuring that financial
statements accurately reflect the company's financial position and
performance, adhering to accounting standards and regulations.
3. Data Sources:
 Financial Analytics: Financial analytics typically involves a broader range of
data sources, including market data, economic indicators, industry trends,
and external factors that impact financial performance.
 Accounting Analytics: Accounting analytics mainly deals with internal
financial data, such as general ledger entries, transaction details, and
financial statements. It also involves auditing and analyzing the accuracy of
financial records.
4. Methods and Techniques:
 Financial Analytics: Financial analytics often employs quantitative methods,
statistical analysis, and financial modeling to make predictions, assess
investment opportunities, and manage risk.
 Accounting Analytics: Accounting analytics involves techniques like ratio
analysis, variance analysis, trend analysis, and forensic accounting to ensure
the accuracy and completeness of financial information.
5. Users:
 Financial Analytics: Financial analysts, investment professionals, and
executives use financial analytics to make informed decisions about
investments, budget allocation, and strategic planning.
 Accounting Analytics: Accounting analytics is primarily used by auditors,
accountants, and financial managers to ensure compliance with regulations,
detect financial irregularities, and improve financial reporting accuracy.
6. Time Horizon:
 Financial Analytics: Financial analytics often looks at both short-term and
long-term financial performance to guide investment and strategic decisions.
 Accounting Analytics: Accounting analytics is more focused on historical
data and the accuracy of financial statements, ensuring that past financial
transactions are accurately represented.
References

Accounting & Data Analytics: What You Need To Know

https://www.franklin.edu/blog/accounting-mvp/accounting-data-analytics
Data Analytics in Accounting: 5 Comprehensive Steps
https://hevodata.com/learn/data-analytics-in-accounting/
Financial Analytics
https://www.qlik.com/us/data-analytics/financial-analytics
Financial Analytics
https://www.techtarget.com/searcherp/definition/financial-analytics
Finance Analytics and Data Analysis
https://www.gartner.com/en/finance/insights/finance-analytics
Financial Analytics – The three-minute guide
https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Deloitte-
Analytics/dttl-analytics-us-da-3minFinanceAnalytics.pdf
How is Data Analytics Used in Finance
https://www.comptia.org/content/articles/how-is-data-analytics-used-in-finance
Uses of Data Analytics in Accounting and Finance
https://www.techtarget.com/searcherp/definition/financial-analytics