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  • Writer's pictureCaroline Brie

Financial Reporting vs. Reporting Analytics: What's the difference?

The terms “reporting” and “analytics” are often used interchangeably. Indeed, there are some key distinctions between the two, and recognizing them can go a long way toward ensuring that your company gets the most out of both financial reporting and analytics.

One way your organization can get the most out of both financial reporting and analytics is by implementing an FP&A solution. Automating financial reporting processes with DataRails CPM solution allows you to focus on making better, data-driven business decisions. Later you’ll be able to switch your focus from reporting to problem-solving by identifying key drivers and spotting red flags in your business. Since all your data is centralized in one place with DataRails you’ll be able to find not only all your financial statements, including those from different functions but also get meaningful insights from each segment of your business.

Here's a rundown of the fundamental distinctions between the two, as well as some pointers on how your finance team may use data to assist your organization to achieve strategic and tactical advantage.

Financial Reporting

If you're unsure about the difference between reporting analytics and financial reporting, it's a good idea to start with a definition of financial reporting. It all starts with core financial statements at the most basic level. Every company must prepare important reports that outline its profitability, the net value of its assets and liabilities, as well as its cash sources and uses. 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 businesses concentrate on the first two, the cash flow report is critical in that it reveals an organization's liquidity, which is critical to its long-term survival.

For each of these three reports, most organizations produce several formats. Monthly, quarterly, or year-to-date income statements, for example, may represent actual performance in comparison to the budget (or some combination of those). These reports show data in a summary manner with little detail or at a more comprehensive level, with information itemized into smaller expense and revenue categories.

The ability to "slice and dice" income statements by isolating information for different firm divisions, product lines, or subsidiaries is also beneficial. It may be essential to declare "eliminations"–adjustments for intercompany transactions that might otherwise misrepresent overall revenues or expenses for the group as a whole–in the case of group firms.

Financial Reporting’s Target Audience

Financial reports can have a wide range of information and layout depending on who they are designed for. For example, public firms must adhere to stringent guidelines to guarantee that any information supplied to investors or regulators is correct, thorough, and in compliance with accounting and legal obligations.

Previously, these reports have been governed by Generally Accepted Accounting Principles (GAAP), but in recent years, country-specific GAAP standards have evolved, and many jurisdictions have embraced International Financial Reporting Standards (IFRS) (IFRS). As a result, many multinational corporations are now required to prepare financial statements by one or more of these organizations of accounting standards.

Finance teams are also required to prepare financial statements for internal use by a company's management team. Although they may pay less attention to legal and regulatory compliance, they are just as significant in terms of providing transparency about the organization's performance concerning its budgeted goals.

Many of the reports that employees utilize daily do not necessarily fall under the category of "financial reports," although they integrate data from the organization's financial systems. An inventory count sheet, for example, collects data from the enterprise resource planning (ERP) system and may even display dollar amounts for each stock-keeping unit (SKU). These reports are classified as "operational reporting" in general since they are used as part of daily operations rather than as a financial management tool.

What about Financial Analytics?

In comparison to financial reporting, analytics has a far broader scope in terms of its overall purpose and goals. Analytics aims to detect trends, spot anomalies, and provide answers to key questions to aid in the making of smarter business decisions. Analytics refers to the process of transforming raw data into actionable insights to not only highlight possible problems and possibilities but also to recommend solutions or actions that management should take to address those problems or capitalize on those new opportunities.

There are several common analytics approaches, all of which play an essential part in most businesses:

Multi-Dimensional Analysis: Most Excel users are aware of the notion of a pivot table, which allows users to quickly summarize and analyze data based on multiple “dimensions.” An analysis of sales could be organized by salesperson, region, product line, or any number of other relevant variables. The multi-dimensional analysis allows users to visualize hierarchical summaries of raw data, allowing them to spot relevant trends more quickly.

Following up on the sales example, a user could want to see sales for various product lines, as well as a breakdown of those sales by location. They may discover that sales of a certain product line are declining in the Southeast as a result of this. This could lead to further inquiry and reveal information about the best course of action. (OLAP stands for "online analytical processing," which is how multi-dimensional analysis is commonly referred to.) OLAP stands for "online analytical processing" and refers to methods for performing multidimensional analysis on large data sets.)

Visualizations: Data visualizations, which include charts, graphs, maps, and other graphical elements, are a particularly useful tool for quickly discovering trends in big data sets. As the technology for creating such visualizations has gotten more sophisticated and affordable, corporate leaders are relying on them more than ever to acquire quick insights into what's going on in their organizations. Because visual displays can condense enormous volumes of data and convey meaning considerably more intuitively than rows and columns of statistics, executive dashboards are becoming increasingly popular.

Ad Hoc Analysis: Business managers have always needed to be able to respond to questions that arise in the normal course of business. This is especially true during periods of rapid change when executives are faced with a plethora of "what if" scenarios. Ad hoc analysis combines historical data with information about probable future scenarios to forecast possible outcomes that could result from internal business decisions or market forces.

Companies should invest in comprehensive, purpose-built reporting systems that can deliver on all of the areas described above to leverage the value of reporting and analytics. Financial reporting is a must, and it should be achievable without a lot of manual labor or the mistakes that often occur when copying and pasting data into spreadsheets.

Similarly, operational reporting aids in the streamlining of corporate processes while also ensuring accuracy and efficiency. Multidimensional analysis, visualizations, and dashboards, as well as ad hoc analytical skills, are all necessities for any firm. For excellence in both reporting and analytics, invest in the right tools.

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