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Reporting Analytics vs. Financial Reporting: Is There a Difference?

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Reporting Analytics Vs. Financial Reporting Is There A Difference 1 1110x379

The terms “reporting” and “analytics” are often used interchangeably. In fact there are some very important differences between the two, and understanding those distinctions can go a long way toward helping your organization make best use of both financial reporting and analytics.

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Here’s an overview of the key differences between the two, as well as some tips on how the finance team at your company can use information to help your business achieve strategic and tactical advantage.

Financial Reporting

If you are confused about reporting analytics vs. financial reporting, it makes sense to start with a baseline definition of financial reporting. At the most fundamental level, it begins with core financial statements. Every organization needs to produce the key reports that summarize its profitability, the net value of its assets and liabilities, and its sources and uses of cash. These three basic categories of reports translate into an income statement–also known as a profit & loss (P&L)–a balance sheet, and a statement of cash flows. Although most organizations focus primarily on the first two, the cash flow report is vitally important insofar as it sheds light on an organization’s liquidity, which is ultimately vital to its survival.

Most organizations produce a variety of different formats for each of these three reports. Income statements, for example, might reflect actual performance relative to the budget, presented on a monthly, quarterly, or year-to-date basis (or some combination of those). These reports present information in summary format with relatively little detail or at a more granular level in which you itemize information into smaller expense and revenue categories.

It’s also helpful to be able to “slice and dice” income statements by segregating information for different company divisions, product lines, or subsidiaries. In the case of group companies, it may be necessary to report “eliminations”–adjustments for intercompany transactions that would otherwise overstate total revenues or expenses for the group as a whole.

Who’s the Audience for Financial Reporting?

The content and layout of financial reports may also vary considerably depending on their intended audience. Public companies, for example, must conform to rigid requirements to ensure that any information presented to investors or regulators is accurate, complete, and compliant with accounting standards and legal standards.

Historically, Generally Accepted Accounting Principles (GAAP) govern these reports, although in recent years, country-specific GAAP standards have emerged, and many jurisdictions have adopted International Financial Reporting Standards (IFRS). This has led to a requirement for many global companies to render financial statements according to one or more of these bodies of accounting standards.

As a matter of necessity, finance teams also produce financial statements for internal use by a company’s management team. Although these may contain less attention to legal and regulatory compliance, they are just as important insofar as they provide clarity with respect to the organization’s performance against its budgetary targets.

Many of the reports that employees use on a daily basis do not necessarily fit into the category of “financial reports” per se, even though they incorporate information from the organization’s financial systems. An inventory count sheet, for example, extracts information from the enterprise resource planning (ERP) system and may even present dollar figures associated with each unique stock-keeping unit (SKU). Broadly speaking, these kinds of reports fall under the heading of “operational reporting”, because you use them as part of routine operations rather than as a financial management tool.

What About Financial Analytics?

In contrast with financial reporting, analytics tends to cast a much wider net in terms of its overall purpose and objectives. Analytics aims to uncover trends, identify anomalies, and answer important questions to help drive better business decisions. Analytics means to turn raw data into actionable insights, not only to reveal potential problems and identify opportunities, but also to suggest solutions or actions that management should take to solve those problems or exploit those new opportunities.

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There are several common approaches to analytics, all of which have an important role to play in most companies:

Multi-Dimensional Analysis: Most power users of Microsoft Excel are familiar with the concept of a pivot table, which enables a user to easily summarize and analyze information according to various “dimensions.You might organize an analysis of sales, for example, by salesperson, region, product line, or any number of other meaningful dimensions. Multi-dimensional analysis makes it easy for a user to view hierarchical summaries of raw data, creating the potential to more easily identify meaningful trends.

Following on the sales example cited above, a user might choose to view sales of different product lines, with a secondary breakdown of those sales by region. In doing so, they might notice that sales of a particular product line is doing poorly in the Northeast. That may prompt further investigation and could reveal insights as to the appropriate corrective action. (Multi-dimensional analysis is sometimes referred to as “OLAP”, which stands for “online analytical processing.” Technically speaking, OLAP refers to methodologies for producing multidimensional analysis on high-volume data sets.)

Visualizations: Data visualizations, including charts, graphs, maps, and similar graphical components, provide an especially powerful tool for quickly identifying patterns within large data sets. As the technology to produce such visualizations has become increasingly powerful and affordable, business leaders are using them more than ever to gain rapid insights into what’s happening in their companies. Executive dashboards are becoming increasingly popular because of the power of visual displays to summarize large amounts of information and convey meaning far more intuitively than rows and columns of numbers can do.

Ad Hoc Analysis: Business managers have always had a need to answer questions that emerge in the regular course of doing business. This is especially true during times of rapid change, when business leaders face a myriad of “what if” questions. Ad hoc analysis brings together historical data with information about prospective future scenarios to model potential outcomes that could arise from internal business decisions or external factors in the marketplace.

To maximize the power of reporting and analytics, companies should invest in robust, purpose-built reporting tools that can deliver on all of the categories listed above. Financial reporting is a core requirement, and should be possible without extensive manual effort and the errors that often result from copying and pasting information into spreadsheets. Operational reporting, likewise, helps to streamline business processes and ensure accuracy and efficiency. Multidimensional analysis, visualizations and dashboards, and ad hoc analytical capabilities are essential requirements for every business as well.

For excellence in both reporting and analytics, invest in the right tools. At insightsoftware, we provide best-in-class financial reporting and analytics tools that seamlessly integrate with over 140 different ERP software systems. insightsoftware designed its products with finance users in mind, enabling non-technical users to design the reports and analytics they need without relying on the IT department. For more information, or to arrange a demo, contact us today.