Welcome back to the third article in this organization redesign series.
Overall analyzing the financial aspects for an organization is not dissimilar to what we do for entire companies: instead of looking at a bigger P&L we work at divisional level or we stay at company level if reorganizing is not limited.
Aim of this part is to assess a division or an entire firm’s performance and competitiveness by analyzing financial positions.
In order to do this you need documents and skills, and is always difficult to find both of them. In more detail:
- You need to gather access to financial reports (current and historical) and industry benchmarks: this will represent the documents you will use to understand for the scope of redesign the financial health
- Identify any relevant event and link them to company history (e.g. an investment, a restructuring,…)
Once you have them and comparing with industry standards, you need to analyze them and determine main points:
- Is division contributing to compensate investors? does the company do?
- Is the company profitable? Is the division profitable?
- Investments and assets do contribute positively to revenues?
- What is the company trend in last years
- Where is the company heading in terms of perspectives and numbers (revenues and costs)?
- Is the budget linear (so increasing predictability of numbers)
- How are the main indicators (e.g. ROE, ROIC, EPS if applicable) compared to industry segment
With this information you will be able to understand how managerial decision tie into financials and vice versa. This will become handy in setting up an organization that not only is performing but is also sustainable.
- Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports; Thomas R. Ittelson (Amazon)
- Ratio Analysis Fundamentals: How 17 Financial Ratios Can Allow You to Analyse Any Business on the Planet; Mr Axel Tracy (Amazon)
- Financial Analysis: Second Edition: A Business Decision Guide; Steven Bragg (Amazon)
Next time we will focus on using the obtained facts to design an effective organization.
(Image by Matt Willmann)