“F i n a n c i a l p e r f o rma n c e a n d c o s t ma n a g eme n t—O n e d o m a i n o f b u s i n e s s value for analy tics can revolve around per formance management. Monitoring and decision making on financial inforRudra Narayan Pandey mation is not often thought of as acompetitive strNividh Consulting a t e g y, b u t i t c a n b e”Nividh Business Intelligence Key - T h e m o s t i m p o r t a n t f a c t o r i n b e i n g p r e p a r e d f919448119930 o r s o p h i s t i c a t e da n a l y t i c s i s t h e a v a i l a b i l i t y o f s u f• http://www.nividh.com/bi/ondemand/fi ficient volumes of high-quality data. nance_bi.jsp
What is Nividh BI Why Nividh BI -Make moreIT-enabled business decision making informed business decisions: based on simple to complex data • Competitive and location analysis analysis processes • Customer behavior analysis• Database development and • Targeted marketing and sales administration strategies• Data mining • Business scenarios and• Data queries and report writing forecasting• Data analytics and simulations • Business service management• Benchmarking of business • Business planning and operation performance optimization• Dashboards • Financial management and• Decision support systems complianceNividh Financial Reporting is a powerful tool for designing and presenting analytic data graphically. You can design traditionalfinancial report formats such as cash management reports, profit and loss statements, and balance sheets. You can also design nontraditional formats for financial or analytic data that include text and graphics
The importance of Business Analytics It is a defined process• Analytics driven organisations are Business Analytics has a defined shaping their own business outcomes order: and delivering exceptional economic performance as a result – Data has been cleansed• For finance executives the benefit is – Clean data is converted to valid clear: good data brings discipline to information business unit planning and – Underlying logic of the model isperformance management and gives correct finance teams the insight to make fact-based decisions – Appropriate forecasting techniques• • By understanding the strategic have been Applied implications of the data, finance teams and decision makers gain the ability to change course in volatile circumstances and achieve competitive advantage Financial data quality management is a business issue, and is defined as the practice by whichcompanies can effectively and consistently combine the following four factors: Financial data collection and transformation Repeatable financial processes Internal controls Audit trails
Challenges Analysis and reporting on Financial Analytics• BI deployments across apps and departments• Fragmented view of information• No consistent definition of business metrics – Are metrics such as product profitability, customer lifetime value, and marketing campaign ROI calculated consistently? – Each analyst with a BI tool may have their own answer• Report-centric model with backlog of new requests in IT – Top management requests get first priority, while needs of other Business users go unmet• Few users have timely and actionable information needed to optimize actions and decisions – Particularly middle management and “front line” users
Analytical review Illustrative examples• High level overview: an overall sense check on • Is the company insolvent? the data, model • Do Non-Current Assets over depreciate?structure and outputs • What happens to the outputs if all inputs are– Hence, need to be clear what the key outputs deleted? are – Tests for hard code in formulae• Do the results appear reasonable under the – Tests for ‘plugs’ base case? – Tests for #DIV/0! errors• Flex inputs to ensure that the outputs change • Chart key items such as EBITDA, debt waterfalls, as expected ratios– e.g. if Sales Volume is increased by 20%, what • Create control accounts happens to Costs OfGoods Sold (and Sales)? • Is interest being treated correctly: rolled up vs. capitalised, etc.• Attempt to break the model (this will not • Ratios: always be an error)• Chart key items to examine the patterns: – Ensure they relate to key outputs– Increasing / decreasing trend – Confirm definitions– “Blips” – Enter some extreme numbers and review corresponding outputs– Time lags or leading indicators• Precedents / dependents analysis
The Analysis of Financial Statements • Ratio Analysis involves methods of calculating andThe Use Of Financial Ratios interpreting financial ratios in order to assess a firms performance and statusAnalyzing Liquidity • Liquidity refers to the solvency of the firms overall financial position, i.e. a "liquid firm" is one that canAnalyzing Activity easily meet its short-term obligations as they come due.Analyzing Debt • Activity is a more sophisticated analysis of a firms liquidity, evaluating the speed with which certain accounts are converted into sales or cash; also measuresAnalyzing Profitability a firms efficiency • Debt is a true "double-edged" sword as it allows for theA Complete Ratio Analysis generation of profits with the use of other peoples (creditors) money, but creates claims on earnings with a higher priority than those of the firms owners. • Profitability Measures assess the firms ability to operate efficiently and are of concern to owners, creditors, and management
Profitability• Gross Margin = Gross Profit / Revenue– High level, “quick and dirty analysis”– Provides contribution analysis at product and / or segment level• Net Margin = EBIT / RevenueRatio analysis http://www.nividh.com/viewDemoDashboard.action?fr=syAd&dashboard.dashbo– Not always defined consistently ardID=158&oq=window.open+ma&fp=1320138907855– Takes into account overheads– Easier to manipulate, but basis for some valuations, e.g. EVA®• Compound Annual Growth Rates (CAGR)– Looks at growth in profit (or other metrics) over multiple periods and provides anaverage annual growth rate (on a compounding basis)– Assists with identifying performance against CPI, etc.
LiquidityCurrent ratio = Current Assets / Current Liabilities– Frequently used ratio– Short-term creditors prefer high current ratio– Shareholders prefer lower current ratioRatio analysis http://www.nividh.com/viewDemoDashboard.action?fr=syAd&dashbQuick ratio = (Current Assets – Inventory) / oard.dashboardID=158&oq=window.open+ma&fp=1320138907855 Current Liabilities Liquidity– An alternative measure of liquidity that does • Debtor days = Closing Debtors x Days in Period / Credit Sales not include inventory (because it may be – Very common ratio – Frequently miscalculatedhard to liquidate inventory quickly) • Creditor days = Closing Creditors x Days in Period / Credit Payments– It is often referred to as the acid test – Also, often miscalculatedCash ratio = (Cash + Marketable Securities) / Ratio analysis Current Liabilities • Inventory turnover = Cost of Inventory Sold / Inventory – Identifies slow moving stock if broken down– This is the most conservative liquidity ratio – Can be calculated in days also– Excludes all current assets except the most Gearing liquid: cash and cash equivalents • Gearing ratio = Debt / Equity – Proxy for financial leverage– Indicates ability to pay of current liabilities if immediate payment demanded
Finance professionals need to learn Managers are required to make efficient and effective data decisions under uncertainty aboutforecasting methods in order to make the future effective decisions • In order to make those decisions, it is• Almost all managerial decisions are necessary to forecast key variables based on forecasts of future • The choice of forecast models can have conditions a significant impact on the accuracy• Forecasts are needed throughout an of forecasts organisation – and they should • It is necessary to understandcertainly not be produced by an isolated forecasting methods (and their group of forecasters limitations) in order to make reliable• Forecasting is never “finished” and timely business decisions• Forecasts are needed continually, and as time moves on, the impact of the forecasts on actual performance is measured, originalforecasts are updated, variance analysis assessed and decisions modified, etc.
• Fixed Costs: These are expenses thatBreak-even Analysis do not fluctuate in relation to theFor Month Ended June 30, 2010 Fixed amount of sales. They can be Costs (Operating Expenses) $ considered operating expenses. 962 Examples of fixed costs are monthly phone bill, insurance payments, rent,Variable Costs (Cost of Goods Sold) etc. 3,680 • Variable Costs: These expenses vary.Break-even in Sales = Fixed Costs + (If these expenses contribute directly Variable Costs = $4,642 to the production of a business’s service or product, then they can beFormula to calculate the break-even considered Costs of Goods Sold as point: well.) Some examples are supplies,• Break-even = Fixed Costs (Operating wages, etc. • http://www.nividh.com/viewDemoDashboard.action?fr=syAd&dash Expenses) + Variable Costs (COGS) board.dashboardID=158&oq=window.open+ma&fp=132013890785 5• OR • (Break-even) Sales = Fixed Costs +• Break-even = Operating Expenses ÷ (Variable Costs / Estimated Revenues) Gross Margin per unit x Sales
The key relation for CVP analysis is the profi t Total revenue = Price *Units of output equation. Every organization’s fi nancial produced and sold TR = PXoperations can be stated as a simple relation In our profi t equation, total costs ( TC ) among total revenues ( TR ), total costs ( TC ), may be divided into a fi xed component thatand operating profi t: does not vary with changes in output levelsOperating profi t = Total revenues - Total costs and a variable component that doesProfi t = TR - TC vary. The fixed component is made up(For not-for-profi t and government of total fixed costs ( F ) per period; the variable component is organizations, the “profi t” may go by different names such as “surplus” or the product of the average variable cost per “contribution to fund,” but the analysis is the unit ( V ) multiplied by the quantity of output same.) Both total revenues and total costs are likely to be affected by changes in the ( X ). Therefore, the cost function is amount of output. 1 We rewrite the profi t Total costs = (Variable costs per unit Units equation to explicitly include volume, of output) + Fixed costs allowing us to analyze the relations among TC = VX + F Profi t = Contribution margin - Fixed costs volume, costs, and profi t. (P -V)X-FTotal revenue ( TR ) equals average selling price perunit ( P ) times the units of output ( X ):
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• Nividh Provides Actionable Intelligence – Configurable Best Practices – Role based Analytics, Metrics and Reporting – Designed for Finance, executives and line managers throughout the organization• Adaptive Application Framework – Flexibility to change as business needs change – Reduces IT complexity • Reduces need for highly scarce IT resources and lengthy development initiatives – Immediate access to critical information, throughout the organization Sales – Vipul Sharma +91-9483-265110 firstname.lastname@example.org, email@example.com firstname.lastname@example.org