Understanding Finance Analytics and the Value It Offers

Companies use finance analytics to assess business performance using modeling techniques and data analysis to make decisions on finance, including budgets, investments, and business processes. By doing this, a business can get a full picture of its finances, gaining insights to predict future financial outcomes and improve performance.

In today's data-driven landscape, companies inside and outside the finance industry can benefit from finance analytics. Departments and organizations can utilize finance analytics to gain competitive advantages, identify market trends, and make informed investment decisions. Explore the role of finance analytics in modern business practices and how relevant skills can propel your career forward.

Types of finance analytics

Finance analytics supports financial decision-making in a company or organization through data analysis. You can classify it into four main types, tailored to helping professionals achieve specific financial objectives and overcome challenges.

Descriptive analytics

Companies use descriptive analytics to analyze historical data to understand past financial performance. You can use this to see what has happened in the past or what is happening now. Think of this as looking at “what happened?” or “what is happening?”

An example is: Looking at a company’s past financial reports to see its sales figures during a certain time period.

Diagnostic analytics

Using diagnostic analytics can help you learn why something happened. You propose hypotheses about your data or correlations between data sets. To confirm or deny a hypothesis or calculate the strength of a correlation, you use your data as evidence. You answer the question, “Why is this happening?”

An example is: Examining the reasons behind a surge in sales coinciding with the upcoming holiday season. To support your hypothesis, you compare sales numbers throughout the ear and determine if holiday sales were significantly greater than the rest of the year.

Predictive analytics

Predictive analytics is about future possibilities based on discoveries from historical data. Statistical modeling and probability calculations can not only find patterns and trends but also predict whether they will happen again. You use predictive analytics to answer the question, “What will happen?”

An example is: Using predictive analysis to learn when the busy periods are in a sales year and how stock levels are likely to change during those times. 

Prescriptive analytics

This is the most complex type of finance analytics. It helps you take actionable steps to achieve your financial goals. Think of this as answering the question, “What should I do?”

An example is: Investigating client risk for a financial product and developing relevant solutions and products.

What is finance analytics for?

Finance analysis plays a pivotal role in understanding financial implications within a company. By analyzing past data, identifying patterns and trends, and understanding why things occur, companies can set forecasts, determine risks, plan investments, and write financial policies. Some important roles finance analytics performs include the following:

Budgeting and forecasting: Financial analysis can enhance accurate financial forecasts and budget allocations. Financial analysts analyze financial data to calculate a year-on-year performance baseline and create future plans based on nuanced predictions of future events. Rather than static forecasts, this flexibility enables real-time changes.

Risk management: Finance analytics supports identifying and proactively mitigating risks. This is common in the financial industry, where companies utilize risk management when selling financial products or acquiring investments. 

Performance analysis: Financial performance analysis refers to measuring and optimizing the financial performance of various business units. By doing so, businesses can make changes that increase profitability and return on investment (ROI).

Investment analysis: Companies and organizations that rely on investments need to perform in-depth market and portfolio analysis to make informed decisions. Often, an external finance analyst fulfills these responsibilities. 

Who uses finance analytics?

Professionals across multiple sectors leverage finance analytics. Financial institutions, insurance and investment companies use financial analysis, but you’ll find professionals in all industries, including retail, manufacturing, energy, and health care to name a few.

Below you’ll find some professional roles that optimize financial analysis across industries and sectors.

Financial analyst

Average annual US base salary: $79,486 [1]

Job outlook (projected growth from 2023 to 2033): 9 percent [2]

Financial analysts use predictive modeling to develop investment strategies, forecasts, and recommendations. You may work at banks, investment companies, insurance companies, or government departments.

Requirements: A bachelor’s degree in a relevant major such as statistics, economics, or similar 

Risk manager

Average annual US base salary: $104,172 [3]

Job outlook (projected growth from 2023 to 2033): 9 percent [2]

Risk managers analyze business processes and finances to assess and mitigate financial risks. This includes conducting risk assessments and creating risk management policies and programs. As a risk manager, you may work in a bank or government agency or in an industry, such as health care or manufacturing. 

Requirements: A bachelor’s degree with a relevant major such as finance, management, law, or similar

Business analyst

Average annual US base salary: $92,496 [4]

Job outlook (projected growth from 2023 to 2033): 9 percent [2]

Business analysts utilize financial data to inform strategic business decisions. This includes analyzing business performance, financial records, and operations to improve efficiency and reduce costs.

Requirements: A bachelor’s degree in business, finance, or similar, with relevant experience

Auditor

Average annual US base salary: $69,269 [5]

Job outlook (projected growth from 2023 to 2033): 6 percent [6]

As an auditor, your responsibilities include financial reporting and compliance. You keep accurate financial records and affirm that businesses properly calculate financial risk.

Requirements: A bachelor’s degree in accounting or finance and sometimes a master’s degree in a relevant field

Pros and cons of using finance analytics

The advantages of finance analytics include enhancing decision-making capabilities, improving financial performance, and mitigating risk. However, it also brings challenges, such as data quality issues and finding skilled professionals.

Advantages:

• Enhancing decision-making: Analyzing data means that business owners can make decisions with concrete evidence. 

• Improving financial performance: Financial analysis allows companies to have thorough information about their finances, what is working well, and what needs improvement. 

• Risk management: Financial risk analysis allows companies to examine the risks involved in their decisions, which informs their policies and products.

Disadvantages:

• Security and data compliance: Utilizing and storing sensitive data requires secure systems and compliance with data confidentiality laws. 

• Skills gap: Data analytics is a complex, interdisciplinary field. The resulting skills gap means professionals must work harder to learn the required skills for a given role. 

How to get started in finance analytics

Finance analytics experts require a range of education and experience to qualify. You’ll need a degree in a relevant major and knowledge and experience gained through internships, entry-level roles, and certifications. 

Experience

A career in finance analytics begins with a solid foundation in financial principles, statistics, and data analysis. To gain practical experience, you can explore internships or entry-level roles in finance and analytics. 

Education and training 

To work as a financial analyst, the minimum requirement is typically a bachelor’s degree in finance, economics, accounting, or similar. You may also choose to enhance your resume with a master’s degree, such as an MBA or a master’s in accounting. 

You may find work as an entry-level financial analyst with your bachelor’s degree, but you may need professional certifications to advance. One example possible pathway is earning the Financial Industry Regulatory Authority (FINRA) Securities Industries Essentials (SIE) certification, followed by the Chartered Financial Analyst certification (CFA).

Next steps in finance analytics with Coursera

Finance analytics supports businesses in making data-driven financial decisions. It requires knowledge and skills in analytical processes, finance, and economics. To take your first steps toward a career in this field, consider taking an online course to broaden your knowledge. Check out the Google Data Analytics Professional Certificate on Coursera and then move on to the Google Advanced Data Analytics Professional Certificate. You can also consider earning your finance analytics degree online with a Master of Science in Analytics from Louisiana State University.