6 Essential Financial Analysis Tools for Data-Driven Insights

Effective financial analysis plays a key role in helping businesses manage cash flow, evaluate investment decisions, and plan for growth. With the right financial analysis tools, such as Cube, QuickBooks, and Microsoft Excel, you can gather meaningful insights from raw data that can lead to better decision-making. As finance teams take on more strategic responsibilities, demand for skilled analysts continues to grow—nearly 900 international organizations recently indicated they have plans to allocate 75 percent of their finance budgets to personnel, highlighting how much they continue to rely on finance professionals as essential to their strategy and operations [1].

Explore six essential financial analysis tools, the benefits of this software, types of financial analysis, and what to expect from a career as a financial analyst.

What is financial analysis?

Financial analysis involves studying financial statements and related data to determine whether your organization has a solid financial foundation and is meeting expectations. Typically, this process includes reviewing key financial documents, such as income statements, balance sheets, and cash flow statements, to assess the organization's ability to generate profit, manage debt, and maintain financial stability. Analyzing this information can help you and stakeholders make informed decisions regarding the future of the business. 

A variety of entities and professionals utilize financial analysis, including investment analysts, government agencies, tax authorities, company management, auditors, and lenders. 

Types of financial analysis

You can use different types of financial analysis—vertical, horizontal, cash flow, or profitability, among others—depending on what part of your organization's financial status you’re attempting to understand. Each type offers a unique lens for interpreting financial data:

• Vertical analysis: Vertical analysis allows you to glimpse a company’s financial status at a specific point in time. To do this, you analyze items on documents such as balance sheets, income statements, or cash flow statements and compare that information to a baseline item. For example, converting each expense line item within an income statement into a percentage of the overall sales can help you determine whether these expenses are helping or hurting the company’s profitability.

• Horizontal analysis: This type of analysis helps you compare financial data between two accounting periods. This type of analysis can help you identify trends, patterns, and shifts in performance. Using this information, your organization can make informed decisions while assessing its financial stability, risk, and progress.

• Cash flow analysis: Cash flow analysis focuses on how much money your company produces and spends over a certain period. Essentially, a cash flow statement illustrates the amount of capital available to a business. Knowing the amount is helpful because the company can, for example, use this cash to gain approval for a loan. More importantly, when you compare the organization’s cash inflow to its outflow, you can determine how much money your company is making.

• Profitability: This analysis helps you understand how your organization generates revenue. You can construct your profit analysis from several different components, such as the amount earned by product, geographic region, individual store, or subsidiary. At its core, a company’s success depends on the amount of profit it makes. By completing a profitability analysis, you can figure out how well it’s doing.

What is a financial analysis tool?

A financial analysis tool helps you simplify data to glean insights that can improve your organization’s decision-making. These tools can make it easier to assess your organization's financial health, track performance, and plan strategically. The following financial analysis tools may help you in your future career, whether you're building budgets, forecasting revenue, or analyzing trends.

Microsoft Excel

This financial analysis tool provides digital spreadsheets that enable you to perform complex calculations about your organization’s finances. It is a versatile piece of software that you can use to conduct risk analysis, capital budgeting analysis, cash flow analysis, and more. If you need to explain the findings of your analysis to stakeholders, you can create visualizations, including charts and graphs, to effectively convey the trends and patterns discovered in the data.

Snowflake

Snowflake provides a data cloud for financial analytics, which offers performance optimization features, data management, and an administration service. Furthermore, it is a pay-on-demand model, so you only pay for the resources you use. Other features include cyber threat defense and data redundancy to protect against data loss, and because it’s cloud-based technology, you can easily collaborate with partners when providing financial services.

Cube

If you’re trying to improve the efficiency and accuracy of your organization’s fiscal-related procedures, you can use Cube to refine the company’s accounting methods, budget creation, and financial forecasting. This financial analysis tool enables you to automate labor-intensive tasks, reducing errors and allowing your organization to make more informed decisions with increased time to spare.

Python

You might think of Python as a popular programming language, but its use of math makes it an excellent tool for data and financial analysis. Because the finance industry produces massive amounts of data, you can benefit by using both quantitative and qualitative analysis to understand it, and you can employ Python to accomplish this. If you choose to become an analyst or a trader in the stock market, Python can help you make predictions because of its compatibility with machine learning.

Mosaic

Financial planning and analysis (FP&A) software, such as Mosaic, works well for small to medium-sized businesses that want to enhance data integration, strategic planning, teamwork, and the overall performance of their organization. Mosaic is a cloud-based financial intelligence application that provides various tools meant to increase visibility into how a business functions. You can use Mosaic to streamline financial planning while consolidating financial data from several departments, such as customer relations and human resources.

QuickBooks

You can use QuickBooks to assemble a thorough analysis of your organization’s financial data. This financial analysis tool allows you to build dashboards so that your organization can gain insights into its financial status. Another positive feature of QuickBooks is the ability to customize reports based on criteria such as product, customer, employee, or vendor. 

Benefits of using financial analysis tools

Financial analysis tools offer several benefits, from increasing accuracy to supporting faster, more informed decision-making. They also allow for customization based on your organization's structure and needs. If you're preparing for a career in finance, understanding these benefits can help you use these tools more effectively. Below are a few ways they can support your work.

• Accuracy: Using financial analysis tools can increase the accuracy of your analysis. For example, Microsoft Excel contains built-in formulas and functions that can support consistent results when working with financial data. 

• Decision-making: Financial analysis software provides you with real-time insights into your organization’s data, which may support quicker evaluations and more informed decisions.

• Customization: Financial analysis tools are also customizable, allowing you to create separate budgets for each department and grant varying levels of data access to employees based on their job roles within the company.

Financial analyst salary and job outlook

As a financial analyst, you can earn a median annual income of $101,910 [2]. The US Bureau of Labor Statistics anticipates approximately 30,700 openings each year, from 2023 to 2033. This 9 percent job growth rate is much faster than average [2].

Learn more about financial analysis on Coursera

Financial analysis tools, such as Microsoft Excel, Cube, and QuickBooks, are important tools for analyzing and gaining insights from financial data. If you’d like to learn more about data analysis, consider the IBM Data Analytics with Excel and R Professional Certificate, which covers topics such as data visualization, data analysis software, and spreadsheet software, among others. You might also pursue the Accounting Data Analytics Specialization offered by the University of Illinois, where you can learn about Python programming, machine learning, and data analysis. Both are available on Coursera.