The Value of Business Intelligence in Financial Management

The Value of Business Intelligence in Financial Management

Decisions made by financial management have a significant impact on a company’s operation, development, and growth. For this reason, any improvement that enables more assertive decision-making holds considerable value. In this regard, companies with Business Intelligence solutions in their financial management can access pertinent, up-to-date, and accurate information that strengthens the decision-making process.

This article will discuss the impact of improvements driven by Business Intelligence in financial management.

Understanding Financial Performance

BI offers a clear and comprehensive view of relevant financial metrics, such as revenues, expenses, and profitability. It assists financial teams in identifying opportunities to save costs and create new revenue streams.

It is possible through dashboards and financial reports developed within the BI system. These provide stakeholders with the information they need to detect patterns and trends, enabling them to initiate necessary actions.

Some of the ratios that can be highly useful for financial management are as follows:

  1. Solvency or Liquidity Ratio measures the company’s ability to meet short-term debts. If this indicator is below one, the company is technically facing insolvency; if it’s above two, there are excess circulating idle assets.
  2. Quick Ratio: This assesses the company’s ability to meet short-term debts without considering stocks. If this indicator is below one, the company is technically at risk of insolvency; if it’s above two, there are excess circulating idle assets.
  3. Immediate Liquidity: This evaluates the company’s ability to meet debts considering only the money in banks and cash. If this indicator is below 0.1, there are liquidity problems; if it’s above 0.4, it indicates idle treasury.
  4. Debt Ratio: This indicates the level of the company’s indebtedness, with an appropriate debt level at 0.5. Higher values suggest excessive indebtedness, while lower values indicate idle equity.
  5. Economic Profitability: This reflects the profitability the company gains from its typical activities. An indicator below 0 represents unprofitable productivity, while above 0 represents profitable productivity.
  6. Financial Profitability: This indicates the profitability of own capital. If it’s above 0, productivity is profitable.
  7. Net Profit: This measures the net profit obtained from company sales. Values above 0 indicate positive profitability.

Analyzing for Better Decision-Making

The analytical power of BI allows finance professionals to compare budget forecasts with actual budgets, helping them identify discrepancies and implement necessary corrective measures. However, the analysis goes beyond identifying disparity; it’s also convenient for making forecasts based on historical financial data, including sales, expenses, and profitability. It enables financial teams to create a more precise outlook and strategic planning.

Enhancing Customer Understanding

Understanding customer behavior is crucial for defining pricing, marketing strategy, and product characteristics. From a financial standpoint, BI can assist in understanding customers in the following ways:

  1. Customer Segmentation: This involves grouping customers based on characteristics, for example, location, purchase frequency, age, etc.
  2. Customer Behavior Analysis: Analyzing factors like purchase frequency can lead to a better customer experience and increased profitability for the company.
  3. Predictive Modeling: Predictive models help forecast how customers will behave in the future, allowing adjustments to financial strategy for better results.

Regulatory Compliance

BI can aid in regulatory compliance by adjusting reports to meet legal standards or guidelines from government agencies. Additionally, alerts can be set up to prompt actions when there’s a risk of non-compliance with monitored regulations.

Risk Management

With BI, you can proactively detect risks in departments like credit, market, or operations. The analysis provided by BI also helps quantify the impact of risk, allowing for prioritization in risk management planning.

In conclusion, BI significantly enhances the ability of finance teams to efficiently manage company resources by bolstering the analysis of financial information and its impact on the company level. With tools like BI4Web, it’s possible to equip your finance team with the analytical and data visualization capabilities needed for highly competitive financial management. Contact us for a free demo.

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