How to Develop Your Financial Analysis Skills for Business Growth

How to Develop Your Financial Analysis Skills for Business Growth | Finance | Emeritus

It is no secret that data is essential for organizations. The need to understand and analyze information is critical if you want to be successful, especially in a data-driven, digital-forward world.  The rapid growth of India’s fintech landscape is a good example of how Indians are embracing technology, with a little help from finfluencers. In fact, the fintech industry is set to be worth $1.3 trillion by 2025, as per the Indian government. This is where professionals with well-honed financial analysis skills become an invaluable asset to businesses. However, most skills that were relevant two years ago are outdated now. New-age techniques like artificial intelligence and big data are transforming traditional financial services.  The evolving landscape compels professionals to not only learn about the latest trends in finance but also upgrade their financial analysis skills. So, let’s shed light on the key skills that are currently in demand.

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Financial Analysis Skills to Master

A professional must master each of the following financial analysis skills if they intend to thrive in their careers:

1. Understand Financial Statements

This skill forms the backbone of financial analysis. It enables individuals to read and interpret financial statements like the balance sheet, income, and cash flow statement. They can obtain an overview of a company’s performance and improve its overall financial management.

Use Case: An analyst can investigate whether a firm has inefficiencies after reviewing its income statement, which shows a consistent expense increase over several quarters.

2. Ratio Analysis

It is among the most crucial financial analysis skills as it involves calculating and interpreting key financial ratios. For example, the current ratio, debt-to-equity ratio and return on equity offer insights into a company’s liquidity, profitability, and operational efficiency.

Use Case: A company’s debt-to-equity ratio can help a bank evaluate if the company has too much debt when extending a loan.

3. Budgeting and Forecasting

These abilities are always an essential set of financial analysis skills. They help predict future revenues, expenses, and cash flows based on historical data, economic indicators, and market trajectory. 

Use Case: An analyst can factor in revenue growth from a new product launch in the annual budget. This forecast helps set financial targets and allocate resources appropriately.

4. Valuation Techniques

Every professional must have a strong grasp of this skill. They can then determine the value of an asset, investment, or company. Discounted Cash Flow (DCF) analysis, Comparable Company Analysis and Precedent Transactions are some common techniques.

Use Case: A company can use DCF analysis to ascertain the fair value of the target company in a merger. This ensures the eventual price tag reflects its true worth.

5. Financial Modelling

Professionals must know how to create a detailed representation of a company’s financial situation with either Excel or some software. It aids decision-making, financial management, and strategic planning.

Use Case: A financial model can evaluate the impact of different financing options, particularly on a company’s capital structure. Eventually, it can choose the most cost-effective strategy.

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6. Cost Analysis

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It helps to understand the relationship between costs, revenue, and profit at various levels of production. It enables analysts to ascertain how to allocate costs to different departments or products for a fair pricing and profitability analysis.

Use Case: A manufacturing company seeks to evaluate the potential costs of a new product line before making a decision. It conducts a thorough cost analysis to determine the potential profitability using Cost-Volume-Profit (CVP) analysts. 

7. Statistical Analysis

Statistical analysis provides the tools to extract meaningful insights from raw financial data. Descriptive statistics, time series, and regression are some popular ways to unearth financial trends, patterns, and relationships.

Use Case: An analyst can use time series analysis to evaluate data points collected over time and predict stock price movement.

8. Variance Analysis

A professional compares actual financial outcomes with forecasted figures to identify discrepancies. It helps identify areas where the business’s performance has been underwhelming or consistent.

Use Case: A department head notices that actual costs for a project are 15% higher than budgeted. They find unexpected increases in material costs and adjust budgets.

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9. Economic Analysis

Everyone needs to know the broad economic environment and its impact on business performance. This includes analyzing economic indicators such as Gross Domestic Product, inflation, and employment rates.

Use Case: A company conducts an economic analysis to assess the market’s stability and potential growth to shape its go-to-market strategy when launching a new product abroad.

10. Data Interpretation and Visualisation

The ability to interpret complex financial data and present it in a clear, visual format is important. Tools like Excel, Power BI and Tableau help create dashboards and reports to make insights accessible.

Use Case: A financial analyst has to make presentations in front of the senior management, and they have to explain complex ideas within minutes. They can use data visualization to highlight key trends and metrics concisely.

How to Gain Financial Analysis Skills for a Career

The demand for financial analysts is always high as companies look to survive in today’s competitive job market. The increasing complexity of financial markets and the need for data-driven decision-making also boost their demand. There were nearly 2,500 listings for a financial analyst after a cursory look at LinkedIn. The demand is mostly for roles like financial analyst, risk manager, credit analyst, and so on. An aspiring analyst can pursue a degree in finance to get started or obtain certifications via reliable online platforms offering courses on financial analysis. A financial management programme is an ideal launchpad. IIMK’s Professional Certificate Programme in Financial Analysis and Financial Management will help you master topics trending across the industry. The programme is designed by experts who share their expertise in the classes. The IIMK programme in association with Emeritus can be an important step toward progress in a data-driven world.

Write to us at content@emeritus.org

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About the Author

Content Writer, Emeritus Blog
Mitaksh has an extensive background in journalism, focusing on various beats, including technology, education, and the environment, spanning over six years. He has previously actively monitored telecom, crypto, and online streaming developments for a notable news website. In his leisure time, you can often find Mitaksh at his local theatre, indulging in a multitude of movies.
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