How to Leverage Financial Data for Year-End Analysis

Leveraging financial data for year-end analysis helps make informed business decisions. You can use your findings to plan for a successful new year.

Understanding where your company is financially helps determine where you want it to go and the steps to get there. Focusing on the following areas can help.

Implement these tips to leverage financial data for year-end analysis.

Analyze Revenue Growth

Revenue growth is the rate of increase in total revenues divided by the total revenues from the same period in the previous year. This growth can be measured as a percent increase from the starting point.

You can calculate revenue growth for the year by subtracting your previous year’s revenue from your current year’s revenue, dividing this number by your previous year’s revenue, and multiplying by 100. For example, if your company earned $2 million in revenue last year and $4 million this year, then your growth is 100%. ($4 million – $2 million = $2 million   $2 million / $2 million = 1   1 x 100 = 100%)

Examine your company’s financial statements to uncover new revenue drivers.:

  • Determine which processes or offerings are responsible for top-line revenue growth. Examples include email marketing, content marketing, freemium offerings, and giveaways.
  • Uncover which processes or offerings are causing decreases in revenue. Examples include churn, user experience (UX), packaging, pricing, and onboarding.
  • Focus on whether you are reaching long-term goals with your current setup. If not, make appropriate changes.

Analyze Profit Margins

Profit margins indicate how effectively your company generates and retains money. One area to focus on is your gross profit margin.

Gross profit margin shows how much profit your company makes on its cost of goods sold (COGS). This number indicates how efficiently management uses labor and supplies in the production process.

You can calculate your gross profit margin by subtracting the cost of goods sold by the total sales amount, dividing by the total sales amount, and multiplying by 100. For example, if your company had $2 million in sales and the cost of its labor and materials was $1.2 million, your gross profit margin would be 40%. ($2 million – $1.2 million = $800,000    $800,000 / $2 million = 0.4    0.4 x 100 = 40%)

If your company has a high gross profit margin, it has money left over for business operations such as marketing or research and development. Conversely, if your company has a downward trend in gross profit margins over time, you must uncover the reasons why and take appropriate action. For example, your company might be experiencing increasing labor and materials costs and passing them on to customers through increased prices.

Analyze Your Budget and Actual Results

Compare your actual financial performance with your budget from the start of the year. For instance, measure your year-to-date performance to determine whether your company is trending ahead or behind the plan. Use your findings to help adjust management tactics.

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