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The launch of new products can be a very scary event for any company. Even if you did enough market research, you cannot deny that there will be a small hint of anxiety left from your staff. Afterall, you cannot really be sure how the product will do in relation to the market’s behaviour. You cannot even be sure if your loyal customers would accept the new product. It is imperative that all the proper analysis and research should be done before doing any product launch.
To ease the anxiety among your staff, the launch of a new product should be justified. Financial justification is one way to defend a product’s viability to a new market. Marketing officials are often required to create a financial. Yes, creating a case for the new product will be a struggle, especially since the data would probably be lacking or incomplete. For that reason, reasonable assumptions are very much needed in order to have a realistic assessment of the situation. You can also like financial analysis tools.
Financial analysis refers to an assessment of the viability, stability, and profitability of a business, sub-business or project. This analysis is usually done by professionals who prepare reports using ratios taken from financial statements and other related reports. Top management is usually presented these reports which will become the basis of their business decisions. The ultimate faith in the product thus lies in the hand of the financial analysis.
Financial analysis can also be referred to as financial statement analysis, accounting analysis, or analysis of finance.
Any new product idea that survives the screening stage of new product development will need a more sophisticated and detailed business and financial analysis. These analyses will help the organization determine the costs involved in your proposed new product. They can also forecast the profits the organization may probably make from the product in the next financial years. The analyses can also help eliminate inappropriate ideas and avoid unnecessary costs. You can also read cash flow analysis templates.
Obviously, the sample financial analysis aims to analyze. It usually is used to assess the profitability, solvency, liquidity, and stability of a firm and its products and services. Finally, the International Accounting Standard Board (IASB) defines the objective of financial reports as “to provide information about the financial position, performance, and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions.”
To sum up the purposes and objectives of financial analysis:
1. To provide information to the management of an organization that can be used for the purpose of planning, analysis, benchmarking and decision making. You can also read company financial analysis.
2. To provide information to investors, promoters, debt provider, and creditors which can be used to allow them to create rational and prudent decisions regarding credit, investment, and other related things. You can also read business case analysis templates.
3. To provide information to shareholders and the public at large in case of listed companies about the various aspects of an organization. You can also like competitor analysis templates.
4. To provide information about the economic resource of an organization claims to those said resources (their liabilities & owner’s equity) and how these same resources and claim have changed over a period of time. You can also read sample competitive analysis templates.
5. To provide information on how an organization procures and uses their various resources.
6. To provide information to its various stakeholders with regards to the performance of the management of the organization. To give an idea of how diligent and ethical they are in discharging their fiduciary duties and responsibilities. You can also like customer analysis templates.
7. To provide information to the statutory auditors who facilitates the auditing process.
8. To enhance social welfare by looking into the interest of employees, trade unions, and Government. You can also read industry analysis templates.
A proper financial analysis consists of five key areas. Each area also contains their own set of data points.
Revenues are the organization’s main source of funds. Long-term success can be determined through the quantity, quality, and timing of revenues. Analyzing your revenue involves:
1. Revenue Growth – This can be calculated by subtracting your revenue last period from the revenue this period and dividing the difference with the revenue last period. ((Revenue this period – revenue last period) / revenue last period) Calculating revenue growth does not have to include one-time revenues as these can distort the overall analysis. You can also read customer analysis sample templates.
2. Revenue Concentration – This can be calculated by having your Revenue from client divided by the total revenue (revenue from client / total revenue). Having a single customer generate a greater percentage of yur revenues could prove to be a difficulty if that said customer decides to stop buying from you. As such, no customer should represent more than 10 percent of your total revenues. You can also read market analysis templates.
3. Revenue per Employee – This is done by dividing your Revenue by the Average number of employees (revenue / average number of employees). This ration measures your organization’s productivity. A higher ratio means higher productivity. You can also like company analysis templates.
Profits determine the survivability of your business. If no quality profits can be produced consistently then the business will die out in the future.
1. Gross profit margin – The cost of goods sold is subtracted from your revenues. The resulting difference is then divided by the revenues. ((revenues – cost of goods sold)) / revenues) Gross profit margins should be healthy in order to allow you to absorb shocks to revenues or cost of goods sold without losing the way to pay for ongoing expenses. You may also like product analysis templates.
2. Operating profit margin – The cost of goods sold is subtracted from your revenues. From this, operating expenses will be subtracted and their total difference will again be divided by the revenue. ((revenues – cost of goods sold – operating expenses) / revenues) Operating expenses do not include interest or taxes. This margin determines your company’s ability to generate profit no matter how you finance your operations. Again, the higher this is, the better. You may also read business analysis templates.
3. Net profit margin – Take your revenue and subtract from it the cost of goods sold, operating expenses and all other expenses ((revenues – cost of goods sold – operating expenses – all other expenses) / revenues). Divide their difference with the revenue. The result would show you what remains for reinvestment into your business and for distribution to owners in the form of dividends. You may also like requirement analysis templates.
This is a measure of how well your company is utilizing its resources. A company who lack this may generate smaller profits and have weaker growths. You can also see sales analysis templates.
1. Accounts receivables turnover – You get this by having your net credit sales divided by the average accounts receivable (net credit sales / average accounts receivable). This can measure how efficient you are at managing the credit you extend to customers. A high number means a well-managed credit and a lower number means a need for improvement. You may also see printable project analysis templates.
2. Inventory turnover – This is your cost of goods sold divided by average inventory (cost of goods sold / average inventory). This measures how well you manage your inventory. A lower number is not a good sign as it can mean that are either not selling well or overproducing for your current levels of sales. You can also see cost analysis templates.
This element of your financial analysis concerns mostly the interest of your lenders and investors.
1. Return on Equity – Calculating this requires you to divide your net income by your shareholder’s equity (net income / shareholder’s equity). The result represents the return the investors are generating from your business. You may also read organizational analysis templates.
2. Debt to equity – Calculating this means to divide your debt by your equity (debt / equity). The definitions of debt and equity may vary, however, this usually indicates how much leverage you are using to operate. Leverage should remain reasonable for your business and should not exceed that. You may also like sample analysis templates.
Analysis of liquidity addresses your ability to generate sufficient cash to cover cash expenses. Poor liquidity cannot be compensated for by any amount of revenue growth or profits. You can also read worksheet competitor analysis.
1. Current Ratio – This calculated through dividing current assets by your current liabilities (current assets / current liabilities). This is a measure of your ability to pay off short-term obligations from cash and any other current assets. A value less than 1 means that your company has not enough liquid resources to achieve these obligations as such, a ratio above 2 is preferred. You may also read data analysis report templates.
2. Interest Coverage – This is a measure of your ability to pay interest expense from the cash you generate. This is calculated by dividing your earnings before interest and taxes by the interest expense (earnings before interest and taxes / interest expense). If you have a value that is less than 1.5, then your lenders will probably have a cause for concern. You can also read gap analysis templates.
Financial analysis is an important process that should not be skipped when a company starts plans to launch a new product. By definition, financial analysis is an assessment of the viability, stability, and profitability of a business, sub-business or project. Having a financial analysis can help alleviate the worries that stockholders and overall staff have on such an event. You can also read sample needs analysis templates.
Financial analysis for new products may be difficult as the required data for such an analysis is either nonexistent or lacking. Careful consideration and reasonable assumptions must be followed in order to ensure a realistic projection of the results. You may also like sample situation analysis templates.