Talking to a finance professional about the importance of analyzing numbers correctly seems like stating the obvious, doesn't it? More or less. To perform any financial analysis and prepare management reports, it is necessary to base yourself on two important pillars: in-depth knowledge of the business and an understanding of accounting.
Here you will find:
Business knowledge
How to deepen knowledge in business?
Accounting understanding
Training to improve your financial analysis
Happy reading!
Business knowledge
Regarding the first pillar, business knowledge, it is crucial that venezuela whatsapp data the finance professional understands in detail the origin of each line of revenue on the Income Statement (DRE). If you do not have a deep understanding of where revenue comes from, it will be impossible to conduct an accurate financial analysis.
Having in-depth knowledge of the business means understanding where revenue comes from, what products/services your company sells, in which markets (national/international) it operates, what the organization's costs are by area and whether the products are produced internally or outsourced.
Income statement examples, when isolated, don’t tell you anything. They are just cold financial data. Therefore, before any calculations, it is essential to delve into the company’s activities. This is a common gap that many finance professionals have yet to overcome.
Read also: 5 Steps to Start Your Career as a Financial Analyst
How to deepen knowledge in business?
how to deepen your business knowledge to perform any financial analysisThe first step to performing a detailed financial analysis and generating consistent financial reports is to “translate” the lines of the income statement. Start with the most important ones: revenue. Try to identify, within your company, which areas generate revenue and which products have the highest turnover.
To illustrate, for many years, Avon defined itself as a logistics company and not a cosmetics company, as its logistics network was key to marketing any product – essential information for any financial analysis.
If the organization is publicly traded and listed on the stock exchange, an important tip is to explore the content generated by the Investor Relations (IR) department, available on the company's website. This area usually offers valuable financial data, which is often unknown to the finance team itself.
Furthermore, it is essential to communicate with other areas of the company, read specialized newspapers and follow blogs and websites of finance professionals to have a broad view of the sector.
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Accounting understanding
There are several DRE models: the corporate one, which is mandatory, and numerous managerial versions developed internally within companies.
But how does this connect to accounting?
The finance professional uses accounting statements as the basis for financial analysis. If accounting knowledge is limited, the analysis will be superficial, as the understanding of the financial data will also be partial.
Since mid-2007, Brazilian accounting has been in the process of convergence with international standards (IFRS), which makes the standardization of accounting procedures essential. The application of IFRS standards allows for the transparent disclosure of information on the financial position, performance and cash flows of organizations, which are crucial elements for a robust financial analysis.
To keep up with changes in accounting, it is worth checking the CPC (Accounting Pronouncements Committee) website. Although the content is technical, it provides all the updates you need to stay up to date in the accounting field. In addition, taking courses that cover accounting changes and how they affect financial analysis can be an excellent way to expand your knowledge.