What financial analysis methods complement final accounts for strategic decision making?

Ratio analysis are good however the ratios to look at varies from industry to industry. For e.g. inventory and other working capital ratios will be key performance indicators but the same would not be relevant for companies operating in the energy or oil and gas sector.

Ratio analysis is a valuable tool for assessing the financial health and performance of a business. It provides a clear picture of how well a company is utilizing its resources, generating profits, and managing its debt. Ratio analysis not only helps in evaluating the performance of a business over time, but also allows for benchmarking against competitors or industry standards. By comparing ratios to industry averages, businesses can identify areas where they excel or lag behind their peers.

Ratio analysis examines key financial ratios derived from final accounts, providing insights into liquidity, profitability, and leverage. These ratios serve as benchmarks, aiding strategic decisions by highlighting operational efficiency, solvency, and potential areas for improvement. They guide resource allocation and investment strategies based on a company's financial health.

Trend analysis evaluates financial data over time, identifying patterns. By analyzing trends in final accounts, businesses gain insights into performance trajectories. Understanding consistent growth or decline in key metrics informs strategic planning, enabling businesses to adapt strategies based on historical movements, ensuring long-term stability.

Variance analysis is a crucial process that enables businesses to evaluate the gaps between actual and budgeted results. By comparing the achieved revenue and expenses with the projected figures, businesses can identify favorable or unfavorable variances. This analysis helps in assessing the efficacy and efficiency of business operations and management.

Variance analysis compares actual financial performance with budgets, pinpointing discrepancies. Analyzing variances highlights deviations in operational efficiency, market conditions, or unexpected costs. Decision-makers use this insight to investigate causes, take corrective actions, and realign operations with strategic goals, ensuring financial objectives are met.

Scenario analysis assesses how different future scenarios impact financial performance. Using final accounts as a base, businesses create scenarios based on assumptions and external factors. This method helps decision-makers prepare for contingencies, mitigate risks, and identify strategic opportunities. Flexible strategies developed through scenario analysis adapt to changing market conditions, ensuring resilience and competitiveness.

One thing that needs to be conveyed is each method provides unique insights, and so they should ideally be used together for more comprehensive decision-making. While some methods like ratio analysis and variance analysis are useful for monitoring ongoing performance, others like scenario analysis and trend analysis are crucial for long-term planning and risk management. The negatives of each method often relate to oversimplifications, reliance on assumptions, or a focus on historical data rather than forward-looking projections. Some more methods like CVP analysis, Break-even analysis and even Cashflow analysis can be considered for a comprehensive overview of operations!

Macro economic outlook, Industry analysis, sector analysis, company comparable analysis etc. will give more insights and information to make strategic decisions.

Beyond quantitative methods, qualitative factors like market trends, competition, regulations, technology, and customer feedback shape strategic decisions. Integrating qualitative insights with quantitative analysis provides a holistic view, enabling well-informed strategies. Considering both aspects ensures financial decisions align with broader market dynamics and customer expectations, enhancing long-term success and sustainability.