25 Secrets of Financial Analysis - Secret #1 – The Quantity Price Magic
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Any exercise of financial analysis that does not help boost profits is meaningless. Do you know which of those exercises actually achieve that?
Every kind of business exists to earn revenues and profits and stay afloat. Without these two critical business objectives, no business an survive. However, in the ocean that is financial analysis, it is paramount that businesses be able to identify the Key Performance Indicators (KPIs) that trigger continuous incremental revenues and profits.
It is one thing to earn incremental revenues and claim revenue growth and quite another to retain that and reflect it in incremental profits. Between the process of earning of revenues and the retaining of profits there are numerous expenses and investment of time and effort that needs to be gone through. What you earn is not necessarily what you retain!
Knowing quickly which revenue increases result in profit increases and in what proportion is a constant game that is played out in the business arena. The effectiveness of that decides whether a business survives or whether it perishes. What contributes to revenues and how they impact profits are critical analysis elements that need to be studied and actioned.
In effect, there are three critical steps to be taken:
- Determine what contributes to revenues – these are prices and quantities
- Ascertain how much of a revenue increase is due to price and how due to quantity
- Analyse the increase in profit as a comparison with increase in revenues
To understand this very powerful analytical tool of 25 Secrets of Financial Analysis you can Shock your Boss with – the first episode which is Secret #1 – The Quantity Price Magic watch this video here.
Learn 25 of the most powerful secrets of financial analysis by subscribing to the Series on Ignite Insight Video Channel here.