Financial Planning and Analysis (FP&A)

Financial Planning & Analysis (FP&A) is one of the primary functions of all companies, and financial analysts are specialized in executing the various activities it requires. Professional analysts provide a significant amount of support and play a critical role in the decision-making process of the CEO, CFO and Operations.

It is one of the critical and most impactful functions in any organization, and successful businesses understand the value of financial planning and managing cash flow. 

The practice of financial analytics provides a useful tool for leaders to garner a robust understanding of business trends and gives insight that allows them to make critical decisions in a timely manner. Financial analysis provides performance information on how a business is performing and whether or not it is profitable, stable, remains solvent, and has sufficient liquidity.

Financial analysts are able to aggregate data into usable information for business leaders to identify trends in transactions or other business activities that allow them to develop more robust and relevant strategies.

Financial analysts execute on the tasks required to perform analysis, planning, forecasting, and reporting. Analysts have a broad scope of responsibilities that includes revenue management, expense management, capital expenditures, investment analysis, and financial statement analysis.

This is different from accounting professionals that are primarily concerned with record-keeping and financial statement production. Financial analysts are tasked with examining, analyzing, and evaluating the entire financial ecosystem of the business.

Because financial analysts are so entrenched in the various financial activities of the company they are extremely knowledgeable on almost all aspects that impact the business. They are well versed in fielding data requests and assisting with the decision-making of virtually every department in an organization. One of the reasons analysts are so highly valued is their ability to perform both qualitative and quantitative analysis.

Qualitative/Quantitative Analysis

Qualitative analysis is the practice of evaluating an investment or business opportunity using non-quantifiable methods. Qualitative analytics are used to identify how things like expertise of management and employee morale impact the potential success of a business. The use of qualitative analysis is an important factor when analyzing any investment opportunity and a financial analyst will be able to perform this type of analysis with confidence.

Quantitative analysis relies on information found in financial statements, or by other quantifiable and mathematical means. This is the primary type of analysis that is conducted in companies and it requires that analysts are competent in understanding how to read and interpret financial statements. 

Evaluating best use of Resources

• This is the analysis of a business’s use of current assets and liabilities to determine if it is yielding the most optimal results. Typically analysts will review return on investment and cash flow information to understand if the use of excess working capital is ideal or requires improvement.

Monitoring Financial Health

• This typically includes calculating and analyzing certain financial ratios that help indicate liquidity or profitability.

Evaluating Net Profit and Profit Margin

• The distinction between net profit and profit margin is important as the products that have the highest profit margin might not be those that generate the most total profit. Because of this, analysts work to identify which products not only have the highest profit margin but also which mix of products leads to the highest total profit.

Forecasting

• One of the primary functions of a financial analyst is to conduct the process of gathering information for and building a company forecast. This requires that the analyst work with various departments to build their forecasts as well.

Internal Reporting

• Financial analysts typically prepare a variety of management reports that cover basic variance analysis and forecasts to more complex and dynamic reporting. Because each industry has its own unique aspects, analysts are often involved in the creation of performance reports.