How can you align your financial analysis with the company's strategic objectives?

Approach understanding a company's strategy for financial analysis as mapping the strategic terrain. Study documents and management insights to chart the company’s objectives and values, aligning financial decisions with this strategic map. Like a cartographer, uncover the nuances of the company's direction, ensuring financial analysis aligns with and supports the overarching strategic journey.

This is a circular process. Set the goals and targets, then complete financial analysis to support. Test if possible. Go back around. Keep doing this process until the financials and goals work. E.g. Goal - to educate 1,000 children on coding in 12 months Metric - each consultant can educate 100 children a year. As a result 10 are needed Consultants cost £20,000 a year. This means £200,000 of income is required to break even. But! The business has overheads of £25,000 and you want to pay yourself £50,000 Therefore £275,000 of income from 1,000 students - that’s £275 per student to breakeven. Is that feasible? Go back around - can you become more efficient on the teaching, and/or reduce overheads - until the financials work!

Understanding the company strategy is the foundation of all the financial analysis. Company strategy outlines the direction and framework for company operations, there are different levels of strategies, and most of the times, all strategies link with financial indications, so the first step for Financial Analysis professionals is to get a thorough understanding of company strategy and apply such knowledge into their daily work. There are lots of ways to learn company strategy, per my experience, 2 key words here: curiosity and engagement, always be curious about your company and its business, and always try to get yourselves engaged in company strategy discussion, review and setting, as much as possible.

When setting your metrics, the SMART framework is crucial: Specific: Clearly define your goals. Measurable: Ensure goals are quantifiable. Achievable: Set attainable objectives. Realistic: Goals should be practical. Timely: Establish a time frame. After aligning with SMART, ensure data collection is straightforward and can accurately reflects your improvement goals. For instance, if focusing on revenue growth, tracking customer numbers is beneficial, but it's not enough! Effective metrics should directly correlate with your primary business objectives. In this case customer numbers and average selling price would be two great metrics to track if Revenue Growth was the goal.

Select metrics for financial analysis as if choosing instruments for an orchestra, ensuring they harmonize with the company's strategic objectives. These metrics should resonate with both financial and non-financial aspects of the company, aligning the financial performance with the strategic melody.

Defining the metrics could a very interesting process, by working together with business teams, we can determine appropriate metrics that reflect company strategy clearly and effectively. Different industries have different common metrics, to name a few, at a manufacture environment, we measure the performance by BCP (base cost productivity) and VCP (variable cost productivity); while for a retail business, we set the KPI as "sales density", "conversation %", etc. Besides common practice used by all companies, it's also necessary for any company to discuss and tailor its own metrics, just make sure they are specific, measureable, actionable, and relevant.

Approach data collection and validation for financial analysis as an archaeologist would, meticulously gathering and scrutinizing financial records, market data, and surveys to reconstruct the company's financial narrative. Ensure the data's accuracy and integrity, like validating historical artifacts, to support a credible financial analysis.

Use data to speak for you, Financial Analysis involves lots of data processing, we need to develop our skills in reading data and abstract the information behind data. Find out reasons or drivers for the current result, as well as the indication on company strategy execution status, then analyze on the impact to future operations, and explore corresponding action plans, which again should align with company strategy. A small tip: data analysis is not data reporting, when taking about analysis, we care more about the "stories" behind data.

Treat data analysis and interpretation in financial analysis as detective work, using a mix of methods to uncover hidden patterns and trends. Connect these findings to the company’s strategic objectives, decoding the financial story to inform strategic decisions. It’s a blend of critical thinking and investigative analysis, linking financial insights to strategic outcomes.

A primeira coisa a se fazer é assimilar claramente quais são os objetivos da empresa a longo prazo e a curto prazo, tendo isso em mente você pode aliar a sua análise focando principalmente nos pontos críticos e fatores determinantes para se atingir os objetivos estabelecidos. É importante frisar que isso não significa negligenciar todo o resto, basicamente você só vai focar mais naquilo que é relevante.

Some tips per my experiences: Well structured, make the "story" logical, concise, smooth, and solid, do some rehearsal where necessary; Know your audience, speak in their "languages", so that the communication and presentation makes sense to both sides and brings values; Keep learning and improving according to the feedbacks we received / observed during the communications; Follow up after the communication / presentation, make our communication effective with sufficient follow up actions, create real values.

The gap between strategy formulation and execution is a real challenge for many businesses. And the reality is that businesses are complex - so many factors are at play. But taking time to invest in processes and tools that help give visibility and connectivity between long term strategic goals and short term performance can be a huge step in the right direction.