Analyzing Financial Data

𝐀𝐧𝐚𝐥𝐲𝐳𝐢𝐧𝐠 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥𝐬 𝐋𝐢𝐤𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐁𝐚𝐧𝐤𝐞𝐫𝐬 1️⃣ Start with the Big Picture Understanding the broader context is essential. Industry Dynamics: What macroeconomic factors, competitive forces, and regulatory changes impact the company Business Model: How does the company make money? Is its revenue model scalable and sustainable Management's Narrative: Read annual reports, investor calls, and press releases. Do the financials align with the story management is telling A mismatch between the narrative and the numbers can be your first red flag. 2️⃣ Examine the Revenue in Detail Revenue quality is the foundation of any valuation. Ask yourself: Are revenue streams diversified, or is the company overly dependent on a few customers or products? Are there unusual spikes, seasonality, or growth patterns Check accounts receivable—are they growing faster than revenue This could signal aggressive revenue recognition. 3️⃣ Scrutinize Expenses for Insights Drill into cost structures and compare trends over time: Cost of Goods Sold (COGS): Are margins consistent, or do they show unexpected variability Operating Expenses: Is there a logical correlation between spending (e.g., marketing, R&D) and growth outcomes Discretionary Expenses: Watch for unusual spending patterns or inflated overheads, which may hide inefficiencies or fraud. Compare expense ratios to industry benchmarks to identify outliers. 4️⃣ Follow the Cash "Cash is king" isn't just a saying—it's a fundamental truth. Analyze the cash flow statement, focusing on operating cash flow. Does cash generation align with reported profits? If not, investigate why. Working Capital: Examine receivables, payables, and inventory turnover. High receivables or slow collections can strain liquidity. A company’s survival depends on cash, not profits, so inconsistencies here are critical. 5️⃣ Detect Red Flags in Accounting Practices Deep-dive into financial statement notes and management assumptions: Revenue Recognition Policies: Changes or overly aggressive assumptions can inflate top-line growth. Capitalization of Expenses: Are expenses being shifted to the balance sheet to boost short-term profitability Frequent “Non-Recurring” Charges: If restructuring costs, write-offs, or "one-time" adjustments recur year after year, take note. Off-Balance Sheet Items: Unrecorded liabilities or guarantees can inflate the company’s financial health. 6️⃣ Benchmark Against Peers Comparing the company to industry peers helps contextualize its performance. Look at: Margins: Are gross, operating, and net profit margins in line with the industry? Leverage: How does the debt-to-equity ratio compare Growth Rates: Is the company growing faster, slower, or on par with competitors Deviations can signal either unique strengths—or risks that need deeper investigation. LinkedIn LinkedIn Guide to Creating

I wish I had learned this framework earlier in my career, when I was a Staff Accountant. At the time, I was booking journal entries and putting reconciliation schedules together from one month-end to the next. I remember finding things I thought management should be worried about but nobody seemed to listen when I would bring them up. Well now, I know that if I was applying this buy-in framework, things would have been much different. So if you want to be the go-to person for strategic recommendations in your organization and help others do the same, do these 4 things consistenly. 𝟏 - 𝐆𝐞𝐭 𝐃𝐚𝐭𝐚 𝐟𝐨𝐫 𝐁𝐞𝐧𝐜𝐡𝐦𝐚𝐫𝐤𝐢𝐧𝐠 Get in the habit of reading other companies’ financial statements and audit reports, especially if they are within your industry. [ Hint: Public companies and large not-for-profits usually have their financial statements available online. ] Start by downloading these documents and diving into the details. Comparing different companies’ financials will give you a broader industry perspective. 𝟐 - 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞 𝐊𝐞𝐲 𝐑𝐚𝐭𝐢𝐨𝐬 Use the financial data to calculate essential ratios like current ratio, debt-to-equity ratio, and return on equity. These metrics are critical for benchmarking against industry standards and understanding where your company stands relative to others. How do you know that your current profit margin makes sense if you don't know the bigger picture? 𝟑 - 𝐀𝐧𝐚𝐥𝐲𝐳𝐞 𝐊𝐏𝐈𝐬 Identify and track key performance indicators (KPIs) such as revenue growth and operating cash flow. Compare these metrics with those of other companies in the industry to gain insights and identify best practices. 𝟒 - 𝐂𝐨𝐧𝐯𝐞𝐫𝐭 𝐃𝐚𝐭𝐚 𝐭𝐨 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬 Use the following framework to turn your analysis into actionable insights and get buy-in on your recommendations: > Observation: What does the data show? (i.e., "Revenue growth has slowed over the last two quarters.") > Analysis: Why is this happening? (i.e., "This could be due to increased competition and higher production costs.") > Implication: What does this mean for the business? (i.e., "If the trend continues, it could impact our profitability and market share.") > Recommendation: What should be done next? (i.e., "We should explore cost-cutting measures and evaluate new market opportunities to boost revenue.") By following this framework, you not only leverage your company’s data but also incorporate industry benchmarks to provide context. This helps stakeholders understand the broader landscape, see the implications clearly, and align with your recommendations, especially if you use an easy-to-understand format. What do you think?

Financial data without context is noise. Knowledge Graphs turn that noise into intelligence. I started my career as a forensic accountant, where I learned how to “follow the money” using graphs. Almost 20 years later, there is so much more that graphs can offer finance and accounting functions. Here are eight ways: 1️⃣ Fraud Detection: ↳ Uncover complex fraud rings and key actors by analyzing hidden relationships within transaction networks. 2️⃣ Auditing & Compliance: ↳ Gain a connected view of financial data for deeper audit insights, real-time anomaly detection, and easier navigation of regulations. 3️⃣ Vendor Contract Management: ↳ Efficiently analyze contract risks and obligations by modeling vendor relationships and dependencies as a graph. 4️⃣ Financial Forecasting & Planning: ↳ Improve forecast accuracy and strategic planning by modeling and analyzing the complex interplay of financial drivers. 5️⃣ Tax Planning & Optimization: ↳ Optimize tax strategies and ensure compliance by visualizing and analyzing intricate tax regulations and corporate structures. 6️⃣ Accounts Payable/Receivable Analysis: ↳ Enhance AP/AR automation by mapping and analyzing payment relationships to identify bottlenecks and anomalies. 7️⃣ Financial Risk Management: ↳ Better understand systemic vulnerabilities and risk propagation by modeling interconnected financial risks within a graph. 8️⃣ Supply Chain Finance Optimization: ↳ Optimize working capital and reduce costs by analyzing financial flows and dependencies across the supply chain network. This is why at data² we built our reView platform on the foundation of a graph database. We enable our customers to “connect the dots” at the scale of today's modern data environment. 💭 How have you connected the dots in your financial data? ♻️ Share this with someone struggling to connect financial dots! 🔔 Follow me Daniel Bukowski for daily insights about performing investigations using graphs+AI.

How often do you look at your numbers outside of tax season?  If you're like most owners, your financials are just another compliance checkbox. What separates businesses that thrive is understanding that financial data isn't just a tax requirement, it's your business's strategic playbook. A shift from standard P&Ls to detailed analysis and predictive modeling changes everything. Your numbers should inform every major business decision. At a basic level, they show you which services actually drive profit, tell you if you're ready for that next hire, and give you a picture how much you can strategically invest for scaling.  But digging deeper is where you find real insight: • Revenue risks in your client base • Customer acquisition costs by service line • Cash flow patterns that predict seasonal needs • Cost structure vulnerabilities and opportunities • Leading indicators for business performance This is where big transformations happen. In a market where most businesses are looking at last quarter's performance, up-to-date financial intelligence becomes a competitive edge. Stop treating your numbers as a compliance checkbox. Start using them as your roadmap to growth.

Many financial analysts kick off their examination of financial statements with a two-pronged approach: Vertical and horizontal analysis.   📊 Vertical Analysis   This technique tackles the question: "How does this company's performance during a specific period compare to others in the same industry?" The key here is establishing a base number for each statement:   Income Statement: Typically, total revenue is used as the base or denominator for the analysis. This serves as a yardstick against which all other accounts are measured. It's akin to a financial magnifying glass that reveals whether costs are higher or lower than industry standards or budgeted.   Balance Sheet: For balance sheets, the focus shifts to how assets, liabilities, and equity contribute to the total asset composition (the base). This evaluation is critical for assessing liquidity, solvency, and the company's capital structure.   Statement of Cash Flows: In this statement, vertical analysis helps us grasp the sources and applications of cash by examining the percentage of cash flows from operations, investing, and financing activities. Typically, net operating cash flow is used as the base, as it's the heartbeat of the company, influenced by factors like net income, working capital, and management's day-to-day operations decisions.   📈 Horizontal Analysis   Contrastingly, horizontal analysis tracks increases in each account from one period to another. This is why vertical analysis is about comparing accounts up and down the statements (across different accounts), while horizontal analysis is about observing changes from left to right (over time).   Income Statement: Horizontal analysis here unveils revenue growth, expense trends, and margin fluctuations year over year. It's a tool for assessing consistency, particularly when it comes to Compound Annual Growth Rate (CAGR). CAGR smoothes out the annualized growth rate over a set period, helping us identify trends, including periods of rapid growth or decline.   Balance Sheet: Tracking changes in assets and liabilities year over year allows management to explain their financial position performance. Particularly, improvements in current assets and liabilities can indicate how well-prepared a company is to weather financial challenges.   Statement of Cash Flows: On the cash flow front, horizontal analysis highlights changes in cash flow, offering insights into management's priorities within the three cash flow buckets: operations, investing, and financing.   By combining these analytical tools, financial analysts can paint a detailed picture of a company's financial health, projecting future trends in terms of margin proportions and cash flow from vertical analysis, and most critically, assessing growth from horizontal analysis.   These techniques are my go-to for every model and report I build, and they should be a staple in your financial analysis toolkit as well!   #StartupConsulting #FinancialModeling #RevenueRick #RobynCG

Most Finance teams don’t suffer from a lack of data. They suffer from a lack of insight. 𝗜𝗳 𝘆𝗼𝘂 𝘄𝗮𝗻𝘁 𝘁𝗼 𝗮𝗻𝗮𝗹𝘆𝘇𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹𝘀 𝗺𝗼𝗿𝗲 𝗲𝗳𝗳𝗲𝗰𝘁𝗶𝘃𝗲𝗹𝘆, 𝗵𝗲𝗿𝗲 𝗮𝗿𝗲 𝟱 𝗾𝘂𝗶𝗰𝗸 𝘁𝗶𝗽𝘀: 1. 𝗦𝘁𝗮𝗿𝘁 𝘄𝗶𝘁𝗵 𝘁𝗵𝗲 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻 → Define the business problem before diving into the numbers.     2. 𝗙𝗼𝗰𝘂𝘀 𝗼𝗻 𝗱𝗿𝗶𝘃𝗲𝗿𝘀, 𝗻𝗼𝘁 𝘃𝗮𝗿𝗶𝗮𝗻𝗰𝗲𝘀 → Move past “what changed” to “why it changed.”     3. 𝗨𝘀𝗲 𝗿𝗮𝘁𝗶𝗼𝘀 𝗮𝗻𝗱 𝘁𝗿𝗲𝗻𝗱𝘀 → Context beats raw numbers; look at margins, turnover, and multi-period shifts.     4. 𝗦𝗲𝗴𝗺𝗲𝗻𝘁 𝘁𝗵𝗲 𝘀𝘁𝗼𝗿𝘆 → Break results down by product, customer, or region to find the real levers.     5. 𝗟𝗶𝗻𝗸 𝘁𝗼 𝗱𝗲𝗰𝗶𝘀𝗶𝗼𝗻𝘀 → End every analysis with a clear “so what” and a recommendation leaders can act on. Finance doesn’t create impact by crunching more numbers. It creates impact by telling the story those numbers reveal. P.S. What’s your go-to technique to turn numbers into insight?