I bet you’ve heard of financial analysis before. Financial analysis is the foundation for any FP&A professional, but it can be hard work to know the different financial analysis methods!
Therefore, as a finance professional, your job is to analyze numbers, make sure they add up and provide insights into the business.
This article will teach you the 5 methods most FP&A analysts use in their work today!
Table of Contents
Top 5 Financial Analysis Methods
Here are the top 5 financial analysis methods
#1: Variance Analysis
In this method, you investigate the difference between actual and planned behavior/figure.
#2: Price Volume Mix
Used to analyze profitability. You calculate the impact of price change, volume change, and a combination of both.
Then, with a good visualization, like a waterfall chart showing the effect of the 3, you will be able to identify and communicate insights to your company.
#3: Financial Analysis – Sensitivity Analysis
Gives you different outcomes based on a variation of one input. Moreover, it’s ideal if you want to understand the effect of price increases or reductions on your profit.
4. Horizontal Analysis
Comparison against another period, reference (budget), or another company. In other words, this method is ideal for spotting trends over time.
5. Vertical Analysis
Analysis of financial statements looking at each line item as a percentage of a base figure within the statement. Therefore, it’s ideal if you need to compare units that have different monetary volumes or if there was a strong change in the volume of activity for a company if you compare to the previous periods.
The Bottom Line – The Financial Analysis Need to Be Executed Carefully
You can easily use Excel to carry out all of the aforementioned procedures by using a variety of formulas, operations, and keyboard shortcuts.
Given the immense value at risk and the likelihood for large data sets to include mistakes, analysts need to be certain they are following best practices when executing their work.
Ultimately, are you interested in learning these five financial analysis methods? Check out my online course, where you will find everything you need for your career success.
