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.

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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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 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 Global Master Certificate in Business Analytics .Ultimately, no matter which course of action you choose for yourself, you will learn and grow as a professional!

Is 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.

Will 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.

What 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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