Financial analysis is the process of evaluating business budgets, projects and other finance related transactions to assess their suitability and performance. It can be deployed to analyse a business’s solvency, stability, profitability or liquidity, giving it the information it needs to plan for both the short and long term.

1. ROB TOLLEY
LONDON
CEO and Co-Founder of Global Specialty Underwriters
The Importance of Financial Analysis
for Business Growth

2. The Importance of Financial
Analysis for Business Growth
Financial analysis is the process of evaluating business budgets, projects and
other finance-related transactions to assess their suitability and performance. It
can be deployed to analyse a business’s solvency, stability, profitability or liquidity,
giving it the information it needs to plan for both the short and long-term.
Financial analysis is a vital element of a successful business strategy, providing
crucial insights into a business’s long-term financial health. Regularly analysing
the finance model allows a business to forecast future opportunities and review
past performance, thereby determining its scalability.

3. The Importance of Financial
Analysis for Business Growth
How to Perform a Basic Financial Analysis
To begin a financial analysis, it’s a good idea to compare the forecast predictions
with the actual monthly results. Financial strategy experts like Rob Tolley know the
importance of assessing where results exceeded projections and areas in which
performance wasn’t as expected.
Next, the business’s profit and loss statement should be reviewed, looking at
whether sales goals were achieved and costs remained within budget. The
business’s cash flow statement should also be reviewed, again comparing it with
previous forecasts.
Finally, the balance sheet should be reviewed, paying careful attention to the
assets the business owns and how much money is owed; doing so can provide an
early warning, if necessary, that the business has taken on more debt than
planned for.

4. The Importance of Financial
Analysis for Business Growth
Vertical and Horizontal Financial Analysis
There are several different types of financial analysis: vertical and horizontal are
two of the most common. Vertical analysis looks at the different components of a
business’s income statement, dividing them by revenue and expressing them as a
percentage. This type of analysis is also referred to as a common-sized income
statement, and finance professionals like Rob Tolley, former London broker,
understand that it enables analysts to compare businesses of different sizes by
evaluating their margins.
Horizontal financial analysis, on the other hand, can help analysts to identify
important trends and determine whether a business is growing or declining. This
type of analysis involves comparing several years of a business’s financial data to
determine growth rate.
The Benefits of Financial Analysis Planning
Deploying financial analysis offers many benefits to a business, including giving
senior managers the ability to make better decisions and improving service levels.
Financial analysis also allows for enhanced transparency and offers businesses
the opportunity to increase profit margins and value for stakeholders.