Best Practices for Analyzing Quarterly Reports

Some Accountants mess this up badly Flux (Fluctuation) analysis is a reliable tool to identify Accounting issues Here is a quick scenario Setup: We start with a financial review revealing an unusual revenue increase due to a $6 million invoice issued in June 2024. This invoice pertains to a customer agreement covering three years (January 2024 to December 2026) for a total of $36 million. Clueless Accountant's Approach: ❌The Clueless Accountant simply issues the invoice and records the entire revenue for June without proper consideration. This approach has its pitfalls: ❌Failing to Perform Flux Analysis:  This accountant neglects to analyze revenue fluctuations effectively. ❌Missing Accruals:  Revenue for the months leading up to the invoice is not accrued. Good Accountant's Approach: In contrast,  the Good Accountant takes a meticulous approach. Here’s what they do: ✅Conducts Flux Analysis:  Identifies the revenue spike and reviews the revenue recognition process. ✅Applies ASC 606:  Utilizes the five-step model for revenue recognition: 1. Identify the contract with the customer. 2. Identify performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations. 5. Recognize revenue when the performance obligation is satisfied. ✅Confirmation: 👤The Good Accountant verifies with the service delivery team that the service was delivered evenly over the first five months, concluding that $1 million should be accrued for each month. ✅Journal Entries 👤The Good Accountant also makes appropriate journal entries for revenue recognition, ensuring that the financial statements accurately reflect the revenue generated during each month leading up to the invoice.

I wish I had learned this framework earlier in my career, when I was a Staff Accountant. At the time, I was booking journal entries and putting reconciliation schedules together from one month-end to the next. I remember finding things I thought management should be worried about but nobody seemed to listen when I would bring them up. Well now, I know that if I was applying this buy-in framework, things would have been much different. So if you want to be the go-to person for strategic recommendations in your organization and help others do the same, do these 4 things consistenly. 𝟏 - 𝐆𝐞𝐭 𝐃𝐚𝐭𝐚 𝐟𝐨𝐫 𝐁𝐞𝐧𝐜𝐡𝐦𝐚𝐫𝐤𝐢𝐧𝐠 Get in the habit of reading other companies’ financial statements and audit reports, especially if they are within your industry. [ Hint: Public companies and large not-for-profits usually have their financial statements available online. ] Start by downloading these documents and diving into the details. Comparing different companies’ financials will give you a broader industry perspective. 𝟐 - 𝐂𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞 𝐊𝐞𝐲 𝐑𝐚𝐭𝐢𝐨𝐬 Use the financial data to calculate essential ratios like current ratio, debt-to-equity ratio, and return on equity. These metrics are critical for benchmarking against industry standards and understanding where your company stands relative to others. How do you know that your current profit margin makes sense if you don't know the bigger picture? 𝟑 - 𝐀𝐧𝐚𝐥𝐲𝐳𝐞 𝐊𝐏𝐈𝐬 Identify and track key performance indicators (KPIs) such as revenue growth and operating cash flow. Compare these metrics with those of other companies in the industry to gain insights and identify best practices. 𝟒 - 𝐂𝐨𝐧𝐯𝐞𝐫𝐭 𝐃𝐚𝐭𝐚 𝐭𝐨 𝐈𝐧𝐬𝐢𝐠𝐡𝐭𝐬 Use the following framework to turn your analysis into actionable insights and get buy-in on your recommendations: > Observation: What does the data show? (i.e., "Revenue growth has slowed over the last two quarters.") > Analysis: Why is this happening? (i.e., "This could be due to increased competition and higher production costs.") > Implication: What does this mean for the business? (i.e., "If the trend continues, it could impact our profitability and market share.") > Recommendation: What should be done next? (i.e., "We should explore cost-cutting measures and evaluate new market opportunities to boost revenue.") By following this framework, you not only leverage your company’s data but also incorporate industry benchmarks to provide context. This helps stakeholders understand the broader landscape, see the implications clearly, and align with your recommendations, especially if you use an easy-to-understand format. What do you think?

Being strategic in finance is all about surfacing insights nobody saw from data everyone's seen. A CFO of a unicorn-trajectory company I met with said this recently, and I've been thinking about it ever since.   I think what resonated so deeply is that it captures exactly what is often missed about being strategic in our function.   It's easy to reduce strategic finance down to "business partnering" or any of the dozens of other buzzwords that float around our industry. And sure, they're relevant for a reason. Business partnering is an important aspect. But that's not all.   As a finance leader, you're diving deep into the same data as everyone else. BizOps, RevOps, data teams, and your CEO all have access to the same information as you. So "partnering" with them isn't going to make you a strategic asset to the company.   Just like an expert art dealer should be able to look at a painting and point out small details and hidden features you never would've noticed, strategic finance leaders should be able to see things in the data that no one else can.   Here are some tips to get started:   1. Look for patterns across time periods, not just snapshots Most teams analyze monthly or quarterly data in isolation. But the real insights come from connecting trends across multiple periods. For example, I once noticed that our CAC was actually stable, but our payback period was extending because customer behavior was changing seasonally. This only became clear when looking at 18 months of data together.   2. Connect financial metrics to operational reality Everyone can see that revenue is down 15%, but can you explain why? Causation is often uncovered only after connecting financial performance to specific operational changes. When I saw our gross margin declining, I traced it back to a product mix shift that happened because our sales team was prioritizing easier-to-close deals with lower margins.   3. Ask "what's not being measured" questions The most strategic finance leaders I know are constantly asking what's missing from the conversation. What customer segments aren't we tracking? What costs aren't we attributing correctly? What leading indicators are we ignoring? Probing these gaps is crucial.   4. Challenge assumptions with data Everyone assumes certain things about the business. Test them. I once discovered that our "most profitable" customer segment was actually destroying value when you factored in support costs and churn rates. This completely changed our go-to-market strategy.   We built Abacum to free finance teams from the manual work I dreaded throughout my finance career: cleaning, unifying, and organizing data. Instead, our platform empowers finance teams to get straight into the strategic work they're meant to do.   DM me to learn more about what Abacum can do for your team.

Profit, not revenue, is the key to success. Here's a 5-step Margin Analysis framework to track profit vs revenue As a financial consultant, I've worked with businesses struggling with profitability due to a lack of in-depth margin analysis. Managing your margins can be a game-changer for your bottom line. I work with clients on shifting their mindset that margin analysis isn’t just a one-time strategy; it’s a continuous process. To help clients stay on top of their game, I put together a checklist of daily, monthly, and quarterly habits to be sure you’re always optimizing your margins. Daily Habits: 1) Review Sales and Cost Data: Do a quick check if daily sales are in line with your projections and monitor unusual changes in costs. 2) Track Key Performance Indicators (KPIs): Focus on daily KPIs such as gross margin percentage and average order value to identify issues. Monthly Habits: 1) Analyze Margin Trends: Compare your current month’s margins against previous months to spot trends or anomalies. 2) Update Financial Projections: Adjust forecasts based on actual performance and any market changes. 3) Review Profitability by Product/Service: Identify which products or services are underperforming and consider adjustments to pricing or cost structures. Quarterly Habits: 1) Conduct a Comprehensive Margin Analysis: Deep dive into your financial statements to assess the health of your margins. Look at (COGS), operating expenses, and net profit margins. 2) Reevaluate Pricing Strategies: Based on your margin analysis, adjust your pricing strategy to ensure optimal profitability. 3) Optimize Cost Structures: Review your cost management practices and look for opportunities for cost reductions or process improvements. Hope this simplifies the process, and helps to start building these habits. Also, I've attached a brief guide on How To Strategically Improve Profit Margins If you need help developing and executing a financial strategy DM me ___________________ Please share your thoughts in the comments Follow me, Beverly Davis for more finance insights