One can find many definitions of financial analysis. Investopedia defines financial analysis as “the process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment.” Wikipedia defines financial analysis as “the assessment of the viability, stability and profitability of a business, sub-business or project. Practitioners of financial analysis may have their own definitions. As a practitioner of financial analysis, my definition is “the process of learning about a business in order to understand what it is doing and where it is going.”
I like to emphasize the word “learning” within my definition because learning is not a perfect process. Human beings will take steps within the process that fail to acquire the necessary insight into what a business is doing and where it is going. The steps that lead to failure within the learning process are called biases. Biases are real within the financial analysis. One cannot eliminate biases but one can manage them.
by Graham Buck, GTnews
This article was published first on gtnews.com
Two-and-a-half years since its formation, the London Financial Planning and Analysis (FP&A) Board is setting itself ambitious goals.
The Board has acquired two official sponsors; Michael Page, the specialist recruitment firm, which now provides its central London office as the venue for Board meetings; and Metapraxis, the consultancy, analytics for financial professionals and software provider.
For its 10th meeting, held in mid-March, Board members embarked on developing a generic blueprint for FP&A analytical transformation and an advanced FP&A analytics maturity model.
What are the basic ingredients of advanced FP&A analytics? Getting the discussion underway the Board’s founder and managing director, Larysa Melnychuk, suggested that it should be proactive, forward-looking, agile, available in real-time, multidimensional and integrated – although these elements are no more than the basic essentials.
One of the realities that FP&A professionals need to realize is people tend to be too optimistic in their financial plans. People tend to expect higher revenues, lower expenses, or less time to recover the amounts of their investments. Psychologists label these expectations as optimism bias.
As an accountant, I am guided by the conservatism principle. The conservatism principle frames financial reporting around errors. The errors that I don’t want to make is overstating assets and net income. Making these errors create an impression that I am presenting a situation that looks better than it is. At its extreme presenting a situation that looks better than it is may be perceived as a fraud and this perception damages the most important qualification of an accountant, integrity.
By Elena Kiristova, CFO Russia and CIS at Groupon
Integrating actuals into the planning cycle is usually not an easy task. Financial and operating results are spread across multiple databases. Actual results and plan detail are at different levels. Lack of underlying volumes and rates make meaningful causal analysis difficult.
BUT - You want apples to apples. Too often you get a fruit salad.
With today’s more intensive focus on driver-based planning and key performance indicators, this article will help management and FP&A staff think through the issues for better Variance Analysis and Corporate Performance Management.
As the term ‘FP&A’ gains traction well beyond North America, how about the roles supporting the FP&A function? Are those roles edged in stone? I’m not sure. Accordingly, I’d like to suggest 3 defining and critical roles for every FP&A team.
Mark Gandy is a long-time outsourced CFO who enjoys practicing the art and science of FP&A across his client base. When he has time, he also writes on his own blog at G3CFO.com.