This is where financial analysis comes in. It’s often called a company diagnosis, followed by the right “treatment” or solution. There are many books about financial analysis filled with formulas and terminology, but today I’ll briefly talk about the possibilities it offers us.
Financial analysis is a tool aimed at gaining new insights. It involves many methods that must be used together to analyze the past comprehensively. What is this new knowledge? It depends on who we compare ourselves to. But who can we compare ourselves with? Many of you correctly answered that comparisons can be made with your closest competitor, industry leader, or representatives of the entire sector.
What new insights can we gain about our company?
– Strengths and weaknesses in general
– Development trends
– Whether assets are used efficiently
– Whether labor is used efficiently
– Is the company solvent?
– Is the company sustainable?
– Are supplier collaborations organized optimally?
– What is the return on owner investments?
– How can we influence profit?
– Cash flow and inventory turnover (especially important for companies with warehouses)
– Is there a risk of bankruptcy?
By obtaining all this knowledge, as a leader, you will be able to set specific goals for developing your company. You will know exactly what needs to be done to generate money and profit. Do you want to be like your competitor or even better? You will see precisely where your differences lie and what makes them stronger than you. Then you can work on self-improvement.
Sometimes, as a result of financial analysis, you may conclude that something you’ve been trying to change and have invested many resources in doesn’t bring as much result as something else that was completely overlooked.
Whether you want to give a loan, invest in a business, or are an executive—remember that looking at your gut feeling and nice colleagues’ stories is good, but NUMBERS ALWAYS TELL THE TRUTH; they just need to be made to speak! And we are here to help you with that.
