You’re analyzing a financial report. How can you use problem-solving skills to make sense of the data?

1 Understand the purpose

Before you dive into the numbers, you need to understand the purpose and context of the financial report. Why was it prepared? Who is the intended audience? What are the main objectives and questions to be answered? Depending on the type and scope of the report, you may need to focus on different aspects, such as profitability, liquidity, solvency, efficiency, or growth. You also need to be aware of the accounting standards, methods, and assumptions used to prepare the report, as they may affect the interpretation and comparison of the data.

2 Review the summary

Most financial reports include a summary or executive section that highlights the key findings, trends, and recommendations. This section can give you a quick overview of the main issues and opportunities facing the business, as well as the actions and strategies proposed to address them. You can use this section as a guide to identify the most relevant and important data to analyze in detail. However, you should not rely solely on the summary, as it may omit or simplify some critical information or assumptions.

3 Compare and contrast

One of the most useful problem-solving skills to apply to financial analysis is comparison and contrast. This means looking at how the data changes over time, across different segments, or relative to other benchmarks. For example, you can compare the current year's results with the previous year's, the budgeted targets, or the industry averages. You can also contrast the performance of different products, regions, or departments within the business. By doing so, you can identify patterns, trends, anomalies, and gaps that may indicate strengths, weaknesses, opportunities, or threats.

4 Evaluate the ratios

Another problem-solving skill that can help you make sense of the financial data is ratio analysis. Ratios are numerical relationships that express the proportion or percentage of one value to another. They can help you measure and evaluate various aspects of the business, such as profitability, liquidity, solvency, efficiency, or growth. For example, you can use ratios to calculate the return on investment, the current ratio, the debt-to-equity ratio, or the inventory turnover. By comparing the ratios with the industry standards or the historical data, you can assess the performance and position of the business.

5 Ask questions

One of the most important problem-solving skills to use when analyzing a financial report is asking questions. Questions can help you clarify, verify, and challenge the data and the assumptions behind it. They can also help you explore different scenarios, implications, and alternatives. For example, you can ask questions such as: How reliable and accurate is the data? What are the sources and limitations of the data? How does the data relate to the goals and strategies of the business? What are the risks and opportunities associated with the data? What are the possible actions and outcomes based on the data?

6 Communicate the results

The final problem-solving skill that you need to use when analyzing a financial report is communication. Communication is the process of sharing and explaining the results and insights of your analysis to others. You need to communicate effectively to convey your findings, recommendations, and rationale in a clear, concise, and convincing manner. You also need to tailor your communication to suit the needs and expectations of your audience, whether they are managers, clients, investors, or regulators. You can use various tools and techniques to communicate your analysis, such as charts, graphs, tables, or reports.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?