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Financial analytics is a set of tools or a system that can be used to increase a company's financial productivity, specifically its profitability. It works through assessing individual or granular aspects of a business opportunity and then combining all relevant information so that an overarching, financially beneficial decision can be made. It allows business executives to proactively seek out ways to change and enhance their business models so that they are constantly up-to-date with the current financial environment.
A financial analytics system requires the integration and assessment of a broad spectrum of data that affects, or may potentially affect, a company. Some particular aspects that the system may take into account include which customers provide the company with the most profit, how the company's customer-base spread out geographically, and which product brings in the most profit. Once the data has been collected, it can be displayed in charts or graphs so that complex and diverse information can be visualized more easily.
Beyond obtaining vast stores of relevant, up-to-date data, financial analytics also seeks to analyze this data and determine why certain trends occur. This analysis can help companies predict what the financial environment will be like in the future. Only then can action be taken, if necessary, to improve financial productivity. For example, a company may decide to reallocate resources for funding new marketing campaigns in areas that have been financially unresponsive to products.
Traditionally, businesses have relied solely on general ledger systems for storing and analyzing financial data. More recently, continuous technological advancements and evolving business models and processes have made these static systems less and less effective in helping increase financial productivity, as they do not take into account external data and future events. Many financial executives are adopting financial analytics as a solution to these problems.
As individuals gradually shift from using old business models to newer ones, the need for financial analytics will continue to grow. Online transactions, such as business-to-employee, business-to-consumer, and business-to-business transactions, are growing more and more popular and changing the fundamentals of the game. As a result, intangible assets, such as research, information, and analysis, are becoming increasingly valuable for increasing productivity.
Companies in need of assistance with financial analytics have two general options. One strategy is to hire an analytics firm to come on site and work closely with accountants, managers, and executives to help gather and analyze data and then form an effective business plan. Another, less expensive option is for companies to use a financial analytics computer software program.