FP&A and balance sheet analysis can drive strategic growth and save finance teams time

Balance sheets are critical documents that keep finance leaders informed about an organization’s financial standing. They are a snapshot of a business’s financial records at a given date and help identify trends in a business’s finances, particularly when it comes to relationships with stakeholders such as banks, investors, customers, and suppliers. A balance sheet may be required for tax, legal, or regulatory purposes. And it can be used to help finance leaders monitor the assets, liabilities, and net worth of a company.

The information found in a balance sheet will usually be organized according to the following equation: Assets = Liabilities + Stakeholders’ Equity. A balance sheet must always balance. Assets must always equal liabilities plus stakeholders’ equity. Stakeholders’ equity must always equal assets minus liabilities. Liabilities must always equal assets minus stakeholders’ equity.

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What is strategic growth?

Strategic growth is intentional growth. A growth strategy is an organization's plan that addresses current and future challenges to realize its goals for expansion. Growth strategy goals could include increasing market share and revenue, acquiring assets, and improving the organization's products or services.

The main types of growth strategies are expansion, vertical integration, diversification, merger, acquisition, and joint venture.

So, how can balance sheet analysis help strategic growth?

When balance sheets are analyzed, the data can be used by business and finance leaders to develop more effective organizational strategies and to adjust processes to better reach organizational goals.

A balance sheet is always based on past data, and while investors and stakeholders can use a balance sheet’s data to predict future performance, past performance does not guarantee future results, particularly in today’s uncertain world. The date on a company’s balance sheet is among some of the most important for finance teams, business leaders, regulators, or potential investors to understand so they know whether a company is struggling or thriving.

Multiple strategies and tactics go into a company’s growth, but an important first step is understating an organization’s capacity for growth. The balance sheet can give this information. The relationship between the company’s assets and its sales is called asset turnover. Asset turnover measures the dollars of sales being generated for each dollar of assets invested. The ability to drive more sales capacity is directly related to the level of assets.

Leverage also affects a company’s capacity to grow sales. Leverage is the sum of liabilities and equity that fund the company’s assets. Leverage measures how many dollars of assets a company controls for each dollar of equity invested. With the proper mix of equity and liabilities, an organization can maximize its ability to acquire assets which allows it to convert asset investments into increased sales. Too much leverage can be reckless, but too little leverage can also be bad because it infers that a company may not be getting the most efficient use of its equity.

While neither asset turnover nor leverage gets to the heart of the matter of how to drive strategic growth, they can tell whether an organization has the potential to grow and whether they are getting the most out of their investments in assets and equity.

Financial planning and analysis and strategic growth

Financial planning and analysis (FP&A) software solutions cover all aspects of planning, giving organizations a clear overview of their actual figures, as well as forecasting capabilities, analytics, and reporting customized to different target groups. The right FP&A solution will speed up planning and forecasting and incorporate integrated P&L, balance sheet, and cash flow data, giving an integrated view on actuals, medium- and long-term planning, and forecasting.

FP&A is increasingly growing beyond its roots as a discipline, and the recent acceleration rate of digitization has given FP&A the ability to plan with data coming from the entire organization rather than just the finance department. Finance teams are experiencing a shift in their core competencies – moving from recording and evaluating data into a multi-faceted discipline and strategic business partners focused on corporate decision-making.

FP&A is rapidly becoming of central importance to driving big-picture organizational strategy. The right solution will:

• Easily share and interpret the numbers by using graphical visualizations and dashboards.
• Deliver greater participation in planning across the organization.
• Focus on the important aspects of financial planning & analysis.
• Trust the numbers by bringing all business data into a single, orchestrated financial plan.
• Increase the speed and quality of your budgeting process.
• Realize significant time savings during planning cycles and enable faster data processing.
• Gain a transparent overview of the progress and results of all planning cycles.
• Respond to change and uncertainty by simulating different scenarios.

How Unit4 can help your organization

Our intelligent FP&A software solutions free your teams to spend more time delivering insights and creating value for the business. We help you understand the numbers more deeply and then turn that insight into action for better business results.

You can harness the power of fully aligned teams and Unit4’s intelligent FP&A software to drive success. Our solutions help you by combining automated, AI-infused financial planning and analysis, budget management, and financial forecasting with highly interactive dashboards and powerful, pre-configured models.

Our cloud FP&A software solution gives your people better, faster ways to put the numbers to work — through smarter planning, budgeting, forecasting, reporting, visualization, and analytics. Your organization can take a flexible, integrated approach for all your organization’s financial planning needs, whether planning cash flow, managing operational budgets, or forecasting sales, costs, and revenue.

Organizations can better manage their operations with industry-leading software for Financial Planning and Analysis (FP&A), Enterprise Resource Planning (ERP), and Human Capital Management (HCM).

You can check out Unit4's People Experience suite here.