Analyzing Your Financial KPI

This section (rather hefty, I must admit) covers ‘classic’ (‘traditional’) financial analysis – and absolute must for any comprehensive business analysis project. As David Gladstone put it in his timeless classic Venture Capital Investment, ‘entrepreneur lives and dies by the numbers. Financial numbers’. And, therefore, so does a business analyst and management consultant.

Financial analysis refers to analysis of values of your financial KPI – the primary ‘K’ in your corporate KPI system. I prefer the term ‘financial KPI analysis’ to the traditional ‘financial statement analysis’ because it more accurately reflects the essence of this process.

You deal with these KPI like with any other KPI – look at their current and historic values – benchmark, planned and actual, analyze KPI dynamics, develop conclusions, write recommendations and comments and develop and implement financial and operational plans for optimizing KPI performance (not all KPI values must be maximized).

Your key tool for analyzing your financial KPI are the dedicated KPI scorecards – KPIS – which are a part of both the CBA Toolkit and the by far more functionally rich Comprehensive Business Analysis Workbench (CBAW).

In the following sections, I will cover four categories of financial KPI:

·         Income statement KPI (which will include statement of retained earnings as well as financial valuation KPI – NOPLAT, invested capital, ROIC, economic profit, WACC and financial value proper)

·         Balance sheet KPI

·         Cash flows statement KPI

·         Financial ratios

Description of each KPI will include the following sections:

·         Description of its essence and economic/financial meaning

·         Methodology for measuring (calculating) the value of the KPI

·         Methodology for optimizing the value of the KPI