Module-4

Financial
Analytics

Dr. Urmila R Menon

Assistant Professor
 Financial Data
Analytics
• involves the systematic
analysis of financial data
to uncover insights,
enhance decision-
making, and improve
business performance.
 Why Financial
Analytics is
 To
Used?
investments
evaluate

 Optimize financial
strategies
 Detect Fraud
 Assess risks
 This field blends
traditional financial
expertise with modern
data science
Why is Financial
Data Analytics
Important?
 Enhances financial decision-
making by providing real-
time insights.
 Improves forecasting
accuracy for budgeting and
strategic planning.
 Identifies risks and fraud
through anomaly detection
techniques.
 Optimizes investments and
portfolio management using
predictive models.
 Provides competitive
advantage by enabling
 Sources of
Financial Data
• It is collected from various
internal and external
sources.
• It helps analysts determine
the reliability and relevance
of the data.
A. Internal Sources (Within
Organization)
B. External Sources (Market
Internal Sources

1. Financial Statements
i. Balance Sheet- shows the
company’s assets,
liabilities, and equity.
ii. Income Statement-
Displays revenues,
expenses, and net profit.
iii. Cash Flow Statement-
Tracks cash inflows and
outflows.
iv. Statement of changes in
equity- Highlights changes
in ownership structure.
Internal Sources

2. Enterprise Resource
Planning (ERP) systems
i. Integrates financial data
from accounting, sales,
HR, and supply chain
management
ii. Examples are SAP, Oracle,
Microsoft Dynamics
3. Transactional Data
iii. Includes customer
purchases, supplier
payments, payroll
transactions, and
investment transactions.
Internal Sources

4. Customer and Credit Data:

i. Customer credit history,
payment behaviour, and
risk profiling.
ii. Helps banks and financial
institutions manage credit
risk.
External Sources

1. Stock Exchanges and

Market Data Providers
i. Sources: Bloomberg,
Reuters, Yahoo finance,
Morningstar.
ii. Provides real-time stock
prices, indices,
commodities, and bond-
market data.
2. Regulatory Filings and
Reports
iii. Sources: SEC (for
companies), MCA (for
Indian Companies), EDGAR
External Sources
3. Macroeconomic indicators
i. GDP, Inflation rates,
interest rates, and
employment rates.
ii. Used for economic
forecasting and market
trend analysis.
4. Industry Benchmarks and
Market Research Reports
iii. Sources- McKinsey, PwC,
IBISWorld, World Bank, IMF
iv. Helps compare company
performance against
industry peers.
5. Alternative Data sources
v. Social Media sentiment
analysis
TECHNIQUE
S IN
FINANCIAL
DATA
ANALYTICS
 DESCRIPTIVE
ANALYTICS
 Summarizes past financial
data to understand trends.
 Financial ratios, trend
analysis, dashboards.
 Example: Analyzing
historical revenue growth to
identify seasonality
patterns.
 DIAGNOSTIC
ANALYTICS
 Investigates reasons behind
financial trends.
 Uses variance analysis,
correlation analysis, and
regression models.
 Example: Identifying why
profit margins declined in a
specific quarter.
 PREDICTIVE
ANALYTICS
 Uses historical data and
statistical models to predict
future trends.
 Machine learning models,
time series forecasting,
Monte Carlo Simulations.
 Example: Predicting stock
price movements based on
historical price movements
and volatility.
 PRESCRIPTIVE
ANALYTICS
 Provides actionable
recommendations based on
predictive insights.
 Tools: Optimization models,
scenario analysis, AI driven
decision making.
 Example: Suggesting
investment strategies
based on risk tolerance
levels.
Applications of
Financial data
analytics
1. Investment and
Portfolio Management
a. Uses AI-driven models
to assess risk and return.
b. Techniques like factor
modeling and asset
allocation improve
portfolio performance.
c. Example: Algorithmic
trading strategies
optimize buy/sell
decisions.
Applications of
Financial data
analytics
2. Risk Management and
Fraud Detection
a. Detects unusual
transactions using
anomaly detection
techniques.
b. Credit risk models
assess borrower default
probabilities.
c. Example: Banks use AI
Applications of
Financial data
analytics
3. Financial Performance
analysis
a. Identifies key financial
metrics such as Return on
Investment (ROI) and
Economic Value Added
(EVA).
b. Helps companies
optimize pricing, reduce
costs, and improve
Applications of
Financial data
analytics
4. Mergers and
Acquisition Analysis
a.Evaluates financial
health of target
companies.
b. Uses discounted
cash flow (DCF) and
comparable company
analysis for valuation.
Applications of
Financial data
analytics
4. Budgeting and
Forecasting
a. Predicts revenue,
expenses, and cash flow
for financial planning.
b. Uses historical data
and predictive models to
enhance accuracy.
Applications of
Financial data
analytics
4. Big Data and AI
Finance
• Natural Language
Processing: Analyzes
financial news and
earnings calls.
• • Sentiment Analysis:
Tracks market mood via
social media and
financial reports.
• • Block chain & Smart
 Tools and
Software for
Financial Data
1.
Analytics
Data Analysis &
Visualization Tools
• Microsoft Excel – Financial
modeling, regression analysis,
pivot tables.
• Tableau & Power BI –
Interactive financial
dashboards.
2. Statistical & Machine
Learning Tools
• Python & R – Data
analysis, machine learning,
predictive modeling.
 Tools and
Software for
Financial Data
Analytics
3. Financial Modeling &
Forecasting Tools
• Bloomberg Terminal &
Reuters Eikon – Market data
analysis.
• FactSet & Morningstar –
Investment research and
portfolio analysis.
.
 Challenges and
Future Trends in
Financial Data
Analytics
Challenges:
1. Data Quality Issues: Inaccurate or incomplete
financial data affects decision-making.
2. Cyber security & Data Privacy: Protecting
financial data from cyber threats.
3. Regulatory Compliance: Adapting to changing
financial regulations (e.g., GDPR, SOX).
4. Integration with Legacy Systems: Combining
traditional financial systems with new AI-driven
technologies.
 Challenges and
Future Trends in
Financial Data
Analytics
Future Trends:
• AI & Automation in Financial Analysis: AI-
driven financial decision-making will enhance
efficiency.
• Quantum Computing in Finance: Faster
financial risk modeling and complex simulations.
• Blockchain & Decentralized Finance (DeFi):
Secure financial transactions and smart contracts.
• ESG (Environmental, Social, Governance)
Analytics: Companies increasingly rely on data
analytics for sustainability performance tracking.
 Activity-1
Industry Case Hack
 Instructions
1. Take the actual financial reports of Indian
Companies. (You can download it from the
company website).
2. Do it in team wise.
3. Each team must analyze the given financial data
and extract insights related to:
a. Profitability trends
b. Risk Assessment
c. Revenue growth patterns
4. Present the key findings as financial analysts.
Evaluation Criteria
1. Clarity of Financial insights – 8 Marks
2. Industry relevance of observations- 5 Marks
3. Presentation Quality- 2 Marks
 Glossary of Key
Financial Terms
1. Profitability Metrics:
i. Gross Profit Margin (%): It measures the
profitability after deducting the cost of goods
sold.
Gross Margin = Gross Profit/ Revenue *100.
ii. Net Income (profit/loss): The final profit after all
expenses, taxes, and interest.
iii. EBITDA: Earnings before interest, taxes,
depreciation, and amortization- Measures a
company’s operating performance before financial
costs.
 Glossary of Key
Financial Terms
2. Risk Assessment Metrics
i. Debt to Equity Ratio- Assesses financial leverage.
Debt to Equity = Total Debt/ Shareholder’s equity.
ii. Current Ratio- Measures the liquidity, short-term
financial health.
Current Ratio = Current Assets/ Current Liabilities.
iii. Interest Coverage Ratio- Measures a company’s
ability to pay interest.
Interest Coverage = EBIT/Interest Expenses.
 Glossary of Key
Financial Terms
3. Revenue Growth Patterns
i. YoY (Year-over-Year) Growth (%)- Measures
revenue increase compared to the previous year.
YoY = Current Year Revenue – Previous Year
Revenue / Previous year revenue *100.
ii. Customer segmentation
Analyzing revenue contributions from different
customer groups.
THANK
YOU
CONTACT
ME
LEAD College of Management,
Palakkad
+91 88488 99406

dr.urmilarmenon@gmai
l.com