How to Level Up Your Financial Performance Analysis 

A financial performance analysis can be a challenging and complex task due to multiple performance indicators and their types.

However, when you break it down into smaller steps, it becomes easier to manage.

In this article, we’ll walk you step by step into how to automate your analysis of financial performance. We’ll also explain the metrics and types of analysis you should be looking into.

What is a financial performance analysis?

A financial performance analysis is a process of evaluating your company’s financial health. This process is usually repeated and associated with looking at financial statements, current ratios, and other essential metrics. The goal of the financial analysis is to provide valuable insights into your company’s strengths and weaknesses. Also, this should help you focus on making informed business decisions.

The importance of financial performance analysis of a company

If you look at your company’s financial performance analysis, you’ll see that it has multiple benefits for different stakeholders including investors, shareholders, and possible lenders.

It’s crucial to measure your financial performance regularly to:

• Assess profitability: Understand how well you are managing your assets and liabilities in generating revenue and meeting objectives. 
• Evaluate financial health: Keep track of your financial position over a specific period of time so you can be proactive in making business decisions. By assessing overall financial health, stakeholders can have the necessary basis for adjusting the company’s strategy, implementing effective risk management, and more.
• Track business performance: Identify operational efficiency by measuring ROI, and looking at your profitability ratios as well as your liabilities. 
• Facilitate planning and budgeting: Get a complete overview of your financial metrics at any given time so you can make both short-term and long-term decisions. 

Tip: If you want to truly leverage your data don’t only use annual reports once a year. Set up financial reporting dashboards that are automatically updated so you can stay proactive and maintain financial health at different points across the year.

How to evaluate the financial performance of a company 

With a data-driven approach and efficient data management in place, you’ll be all set for conducting an insightful financial performance analysis of your business.

Here’s how to achieve this in five steps.

1. Decide the type of analysis you want to focus on

The first thing you need to do is to determine the type of analysis you want to perform. This is important as it will determine the indicators needed and tell you what data you need.

You might want to focus on your balance sheet data for a liquidity analysis or look at your estimated budget vs the budget spent over a period of time for a variance analysis.

This data might be in your QuickBooks, Xero, or Stripe account or even across multiple spreadsheets.

We will explore the main types of analysis and metrics in the following sections, what you need to remember for now is that the analysis type will determine the data that you need.

2. Make analysis an ongoing process

Before you start exporting data and trying to figure out how to blend it and visualize it for your analysis, you should consider looking at an ongoing approach rather than relying solely on yearly or quarterly performance reports.

Streamlining reporting and monitoring crucial processes can help achieve this. 

This approach provides more accurate and timely analysis of trends, better responsiveness to changes, and continuous decision-making based on data.

3. Implement data automation

Data automation can be a game changer when it comes to implementing an ongoing financial analysis. 

By automating your data flows you eliminate manual data entry, copy-pasting, or manually extracting data on a regular basis, which can be time-consuming and tedious. Not to mention, being prone to human errors.

For example, data in your accounting software is being updated on a regular basis. Updating your reports for analysis manually will mean wasting time. 

But when you automate your data flow, for example, from QuickBooks to BigQuery or to a spreadsheet app, you get instant access to the latest data that is always fresh and analysis-ready.

We have a full step-by-step data automation process example at the end of the article that you can check out.

4. Leverage machine learning (ML) algorithms for analysis and forecasting

To enhance your financial performance data analysis and forecasting, you can use ML algorithms. It enables you to identify patterns and correlations in your data that a human analyst might not be able to see.

For example, in BigQuery, a data warehouse, you can create and execute machine learning algorithms to analyze large sets of your data and identify correlations and patterns. To get started with BigQuery, you will first need to move your data there. You can automate your data flow for manipulation and analysis or simply load it manually.

5. Analyze your data with informative dashboards

If you want to track different metrics and KPIs and make your business decision-making powered by data, you should use dashboards. 

Analyzing data with informative dashboards is all about making your data digestible and insights generating. Specific data represented in a visually appealing way is meant to help you understand large amounts of information. Graphs, charts, or tables on a dashboard make the data easy to comprehend hence facilitate you to identify trends, patterns, and anomalies in financial data.

For example, your may have a dashboard with a line chart to display your company revenue over time. It can also give you the ability to drill down into different income sources, like product vertical or geographical location.

You can create dashboards using multiple business intelligence tools such as Looker Studio, Power BI, or Tableau. They provide different customization options to adapt dashboards to the needs of your business. 

Below is an example of a financial performance dashboard. It’s designed in Looker Studio and rests on the data collected from multiple sources. This allows you to have a quick overview of your financial sales performance. 

You must not always visualize your data yourself. The Coupler.io data analytics team is ready to assist you in any complex data visualization or data management task you have. 

Now you understand the value of financial analysis and what you need to perform one. But how do you choose the metrics to track and what type of analysis suits your needs?

In the next sections, we’re going to answer these questions and more. You’ll learn where to get the needed data and how to calculate the most common financial KPIs.

Financial statements for measuring financial performance

A financial statement is a summary-level report that shows your business performance. Businesses typically use four primary types of financial statements: the balance sheet, the income statement, the statement of cash flow, and the annual report. In some cases, instead of the annual report, you can go with the statement of retained earnings.

Some financial statements are available in your accounting software such as QuickBooks. Others need to be created separately using the data from external sources. Let’s check out each of these financial statements:

• Balance sheet: an overview of your company’s financial position at a specific point in time. A balance sheet typically includes information about assets, liabilities, liquidity, and equity.
• Income statement: a report of your company’s revenues, expenses, and net income. Income statements are usually generated for a specific period of time, like a quarter, half a year, etc..
• Cash flow statement: a report that shows all cash movements, in and out, over a specific period of time.
• Annual report: an overview of your company’s financial performance across the year. Annual reports may also include other information such as risk factors, management’s discussion, and so on. 

Types and methods for financial performance analysis

The type of financial statement analysis defines the data to be used. Let’s look at the most common types of analysis to determine the data you need to process.

Horizontal analysis

A horizontal analysis identifies trends and changes in your company’s financial performance over time. It’s also known as a trend analysis and works by comparing financial statements from different periods like year to year or month to month.

You can use horizontal analysis to identify strengths and weaknesses, as well as feasible opportunities and threats.

To perform a horizontal analysis, you need to take a specific item from a financial statement, for example, expenses, and compare it across two or more periods of time. This way you’ll get a year-over-year or quarter-over-quarter analysis of expenses.

Vertical analysis

Vertical analysis is the comparison of financial statements vertically meaning that each line item is represented as a percentage of a base figure within the statement. 

For example, in a vertical analysis of the income statement, each line item would be expressed as a percentage of total revenues. 

The insights derived from such analytics allow you to understand your company’s overall profitability and how it is affected by each revenue item.

Liquidity analysis

A company’s liquidity is its ability to meet its financial obligations. Essentially, it means that a company can pay its bills, including salaries and rent, and doesn’t have to sell any assets for this or incur additional debt.

Liquidity analysis is a key part of financial performance analysis since it gauges a company’s ability to generate cash efficiently. 

The liquidity analysis is typically done by comparing a company’s current assets to liabilities.

Profitability analysis

A profitability analysis answers a simple question – is your business profitable or not. For this, such items as revenue, costs, and profits are analyzed. 

To analyze profitability, you need the following financial metrics: gross profit margin (GPM), net profit margin (NPM), return on investment (ROI), and return on assets (ROA). This information will let you understand which areas of your business generate the most profit and which need improvement.

Variance analysis

Variance analysis is a comparison of actual financial results to the planned ones. It also helps you identify the reasons for the differences between what you expected and the actual outcomes.

For example, if you expected $10,000 in sales for a month and only made $8,000, variance analysis would help you identify the reason for the $2,000 difference. Pricing issues, greater costs, or lower demand could lead to this.

Understanding the reasons for the differences between planned and actual results can help you improve your financial planning and budgeting. This can be adjusting budgets, identifying cost savings opportunities, or investing in areas that are generating higher-than-expected returns.

Financial performance indicators and quantifiable metrics

Here are the metrics most used to analyze a company’s financial performance and how to calculate each.

Metric	What it measures	Formula
Gross profit margin	The percentage of revenue left after deducting costs	Gross profit margin = (Gross profit / Total revenue) x 100
Net profit margin	The percentage of revenue remaining after expenses, taxes, and interest are deducted	Net profit margin = (Net profit / Total revenue) x 100
Working capital	An organization’s cash flow for day-to-day operations	Working capital = Current assets – Current liabilities
Current ratio	The current assets to current liabilities ratio measures a company’s short-term debt repayment ability	Current ratio = Current assets / Current liabilities
Debt to equity ratio	A measure of financial leverage and risk based on a company’s total debt to total equity	Debt to equity ratio = Total liabilities / Total equity
Quick ratio	An alternative to the current ratio that excludes inventory from current assets	Quick ratio = (Current assets – Inventory) / Current liabilities
Inventory turnover	Sales and replacements of inventory in a given period by a company	Inventory turnover = Cost of goods sold / Average inventory
Total asset turnover	It measures how efficiently a company generates sales based on its assets	Total asset turnover = Total revenue / Average total assets
Return on equity (ROE)	Profit generated by a company in relation to its shareholders’ investment	ROE = Net income / Total equity
Return on assets (ROA)	A company’s profitability as a percentage of its assets	ROA = Net income / Total assets
Operating cash flow	The amount of cash generated by a company’s operations, used to determine how well it can pay its debts and invest in expansion	Operating cash flow = Net income + Non-cash expenses – Changes in working capital

How to automate your financial reporting for continuous analysis

You can create automatically updated “evergreen” financial reports by automating your data flows. In this way, you will be able to track your metrics in real-time and analyze performance more easily.

Even though automating reporting sounds like a complicated thing, it doesn’t have to be. You can easily do this with user-friendly tools that don’t require any special knowledge to use. For example, we can recommend Coupler.io – it’s a user-friendly, easy-to-use platform that provides businesses with a complete set of tools to help you automate your data flows quickly and efficiently.

Let’s see an example. 

Let’s say you are using  QuickBooks, and the data there constantly changes and updates. You want to transfer it to a spreadsheet, blend it with your data from other sources, and create a report. If you use Coupler.io for automation, it can transfer your data from QuickBooks and other apps to Excel or Google Sheets and then update your financial data in the spreadsheet automatically according to your schedule. As a result, you get an auto-updating report.

Coupler.io allows you to automate data flows from over 75 data sources, including QuickBooks, Xero, ChartMogul, YahooFinance, Excel, and others. Financial analysts commonly connect Stripe to BigQuery to better understand their data.

Or to give you another example, let’s see how you can easily export QuickBooks to Google Sheets. Alternatively, you can use the same flow to export data from QuickBooks to Excel, BigQuery, or Looker Studio.

Creating an automated financial report is very simple:

• Sign-up to Coupler.io and select the apps to connect. In our example, we select QuickBooks as a Source and Google Sheets as a Destination.

• Then you will need to follow the instructions to connect your QuickBooks account and select a data category to extract. We will export Balance Sheet. 

• After this, connect your destination account and select where you want the data to go (eg. if you are automating a data flow to Google Sheets, you’ll select the workbook and sheet).
• Once this is done, you can set up a custom schedule for automatic data refresh.

Run the importer to transfer your Balance Sheet data to Google Sheets. Here’s what the result will look like.

That’s it, now you can add other data on a separate spreadsheet, organize your information into a report, and Coupler.io will refresh it according to your schedule. 

You will now have an auto-updating financial report that is always up-to-date without any manual effort. As you can see, this can be done in a matter of minutes and doesn’t involve any complex steps. Try it out and see for yourself how it would work for the financial reporting tasks in your organization.

Even small steps in automating financial reporting can bring significant results. For example, take a look at this insightful Terminal 1 Case Study. 

Terminal 1, a popular recruitment platform, struggled to blend and process data scattered across several apps. They needed to merge data from two separate QuickBooks accounts, blend it with data from Airtable, and visualize it in one dashboard for live monitoring. Read the full Case Study to learn how they streamlined their dataflows and automated reporting. 

Final words for your company’s financial performance analysis 

From assessing your company’s financial condition to validating your business model or optimizing operating expenses, financial performance analysis is crucial.

In this article, we covered a lot of information, but there is one key thing you can do to stay on top of your numbers and be proactive in managing your business. Financial performance analysis should have data automation at its core. Especially when we are talking about data at scale.

The list of metrics and performance indicators we covered in this article is not exhaustive and when your data comes from multiple sources, updating it manually is only going to lead to inaccurate and unreliable data.

If getting started with your analysis seems overwhelming, the best way forward is to start small, with one type of analysis. Another important thing to keep in mind is that your financial performance analysis should be focused on specific goals you need to achieve. 

We hope this article was helpful to you!

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