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What is Financial Analytics & Why it is important?

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18th Jun, 2023
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What is Financial Analytics & Why it is important?

The world of data analytics is fascinating. After all, isn’t it amazing to deconstruct data, delve into it, and gather meaningful patterns from within?

Given how data has shaped our world, it only makes sense to localize data analytics into every data-rich domain. So when it comes to finance, analytics plays essentially the same roles as it does in other areas – it provides a window to derive insight based on which organizations can make sound financial decisions. 

How does financial analytics work in an organization?

Financial analytics can be thought of as the backbone of any organization, which powers other functions with the fuel to run smoothly. To extend this analogy, if financial data analytics holds up the company at a financial level, the HR function will ensure enough employee engagement at the company level. Thus, these wings come together to create the organization’s nervous system. The basic idea behind this analogy is to convey that organizational functions are interrelated – one cannot exist without the other.

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Beginning on this note of interconnectedness, we can say that financial data analytics helps identify which decisions are financially sound and which aren’t. A good example of this is – continuing the analogy mentioned earlier – how much money to spend on attracting good candidates versus retaining candidates. Taking this decision becomes easier with financial analytics because it provides deep insights into the data collected. 

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In fact, this interdependence is not just limited to HR but also extends into other areas. For instance, financial analytics determines the budget of a marketing campaign, the funding of different teams in the organization, and much more.

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The Evolving Landscape of Financial Analytics

The Impact of Artificial Intelligence and Machine Learning: Financial data analytics has been transformed by artificial intelligence (AI) and machine learning (ML). These technologies allow organizations to process massive volumes of data in a timely and reliable manner. Algorithms driven by AI can discover patterns, detect anomalies, and estimate future trends, improving the accuracy of financial projections. Furthermore, ML algorithms automate monotonous processes, allowing analysts to focus on strategic decision-making.

  • Real-time Data Analytics: In the financial business, real-time data analytics is becoming increasingly important. With the advancement of technology, businesses can now analyze data as it is created, allowing for speedy decision-making. Real-time analytics may help you understand market trends, consumer behavior, and risk management. It enables organizations to adapt quickly to changing market circumstances, optimize trading tactics, and efficiently minimize risks.
  • The Role of Blockchain in Financial Analytics: Because of its capacity to improve security and transparency, blockchain technology has gained traction in financial data analytics. Blockchain provides data integrity and reduces the danger of fraud or manipulation by utilizing decentralized ledgers. Financial organizations may use blockchain to increase transaction security and efficiency, as well as to improve audit trails and expedite compliance processes. However, blockchain application in financial data analytics necessitates careful consideration of scalability, legal frameworks, and interoperability issues.
  • Advanced Visualization Techniques: Effective data visualization is paramount in financial analytics to comprehend complex data sets and communicate insights. Advanced visualization techniques, such as interactive dashboards and visual analytics tools, enable users to explore financial data intuitively. By presenting data visually, organizations can identify trends, outliers, and patterns more easily. Visualizations also facilitate effective communication of insights across departments, aiding in decision-making processes.

The Importance of Data Visualization in Financial Analytics

Data visualization plays a pivotal role in financial analytic tools, enabling organizations to make sense of vast amounts of complex data. It goes beyond presenting numbers and charts; it transforms raw data into meaningful insights that drive informed decision-making. Here are some key reasons why data visualization is crucial in financial analytics:

  • Enhanced Data Exploration: Interactive visualizations empower users to explore financial data analytics more dynamically and intuitively. With interactive features like filtering, zooming, and drill-down capabilities, analysts can dive deeper into the data, uncovering hidden insights and discovering valuable correlations. This fosters a deeper understanding of financial trends and helps identify potential risks and opportunities.
  • Effective Communication of Insights: Data visualization facilitates effective communication of insights across departments and stakeholders. Visual representations make it easier to convey complex financial information in a digestible format. Whether it’s presenting financial reports to executives, collaborating with team members, or explaining data-driven recommendations, visualizations enhance communication and promote a shared understanding of the data.
  • Rapid Decision-Making: In today’s fast-paced business environment, quick decision-making is essential. Data visualizations enable stakeholders to absorb information rapidly and make informed decisions promptly. Visual representations provide a holistic view of financial data, enabling users to identify trends, outliers, and potential risks promptly. This agility is crucial in seizing market opportunities and addressing emerging challenges effectively.
  • Identifying Key Performance Indicators (KPIs): Data visualizations assist organizations in identifying and tracking key performance indicators (KPIs). Businesses may monitor their financial health, gauge progress, and take proactive changes if performance deviates from planned objectives by visualizing KPIs in real-time. This enables organizations to stay on track with their strategic objectives and make data-driven changes as needed.

Types of Financial Analytics

1. Sales analytics

A fairly obvious area where financial analytics can genuinely add value is sales analytics which can predict how fast a company will grow and by how much. This is almost the foundational level of financial analytics data basis on which other decisions are made. For example, sales analytics can point out which products garner maximum sales. So, if there aren’t enough people on the team to support creating new products in that department or for customer service, the company will know it needs to hire more people. 

2. Profitability analytics (across functions)

This is one branch of analytics that concerns itself with making sure that the company never loses track of where it’s headed, regardless of how many clients it or products it has on paper. Fundamentally, business engagements can either make money for an organization or add to its cost. Each organization must balance these metrics, with an obvious priority placed on profitability. Companies can gain deeper insights into their profit and loss metrics with financial analytics, thereby understanding which direction to take. 

3. Cash flow analytics

This may not be very apparent when it comes to huge organizations – who have either raised funding or are already in a position where they have steady cash flows – but there is a lot of behind-the-scenes work that goes into it. Some of the metrics used to make this happen include cash conversion and a working capital ratio, and logistic regression becomes the go-to financial analytics tool here.

4. Shareholder value analytics

This type of financial analytics provides shareholders more insight into how a company’s stock price behaves. Of course, if the recent massive peaks and troughs in the stock market are any indication, there are a multitude of forces that determine these things. And financial analysis seeks to bring clarity to this confusing situation. This can end up making a huge impact in every imaginable real-world context. Hence, shareholder value analytics is used in conjunction with profitability analytics and cash flow analytics. Depending on the type of value being forecasted, sales analytics may also be used.

5. Value-driven analytics

This is perhaps the most visionary of all the types of financial analytics listed here. However,  it is not just a qualitative evaluation of terms. Value-driven analytics typically refer to the actualization of the values set by an organization and how well it’s doing. This analytics ensures that the larger strategic metrics do not fall off the radar – it tries to pin accountability to these strategic metrics by assigning them quantitative data points.

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Is Financial Analytics the right choice for you?

If you’ve felt confused about whether you should pursue a career in financial analytics, or are struggling to make the decision right now, don’t worry – we have a list that should help you decide!

Financial analytics is a field for you if:

  • You feel excited about the prospect of completely getting into the nitty-gritty of an organization’s finances.
  • You can think about the big picture while focusing on the most granular details.
  • You’re fascinated by how data works and want to use it to extract valuable insights.
  • You want to work with numbers, graphs, visualizations and present your work to relevant stakeholders.
  • You believe you have the right mix of curiosity, passion, and dedication for this area of expertise.

Most importantly, if you aspire to build a career in finance, this is the most trending option for you!

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upGrad offers various courses for finance aspirants who want to capitalize on the available opportunities. For example, with upGrad’s Business Analytics Online Certification course that lasts only three months, you can do actual industry projects to bolster your portfolio. You even get 100+ hours of lessons and placement assistance after course completion!

upGrad offers placement assistance for you so that you can apply to various companies even before they open the job posts on multiple portals. Moreover, you also get career assistance and networking opportunities to better prepare for real-world situations. 

Depending upon your career requirements, you may consider doing another course from upGrad, such as a Job-ready Program in Business Analytics .Ultimately, no matter which course of action you choose for yourself, you will learn and grow as a professional!

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Rohit Sharma

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Rohit Sharma is the Program Director for the UpGrad-IIIT Bangalore, PG Diploma Data Analytics Program.
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Frequently Asked Questions (FAQs)

1Is Financial Analytics a reliable career option?

Given that it’s a subset of data analysis in the technical sense, compounded with the fact that it’s already a financial field (which never loses demand), it is a reliable career option. Moreover, as the demand for business analysts increases worldwide and the need for a more specialized role goes up alongside, the career path for financial analysis will become even more relevant.

2Will a Business Analytics course equip me with what I need to become a financial analyst?

The answer depends on which course you have opted for and what kind of job you want to do. For example, there may be jobs for which only a basic proficiency of Excel is required. However, other positions may demand a detailed understanding of Python or R. This is a context-dependent question, but in a nutshell, business analytics courses help you acquire industry-relevant skills.

3What kind of educational background do I need to become a financial analyst?

Your educational background may not matter as much as your vocational background. All you need is a desire to learn and the consistency to follow through on your plans. Just keep putting in the effort - the results will speak for themselves.

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