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Financial Statement Analysis holds the key to understanding your clients’ businesses, identifying attractive loan and other financial transaction opportunities, reducing credit losses, and increasing profits.
We’re all too familiar with opportunities that are overlooked, mainly because bank relationship managers don’t understand the nuances of their clients’ financial statements and don’t know where to find the opportunities and challenges lurking in the cobwebs—namely what financial statements tell us, especially the footnotes! The more informed your relationship managers, portfolio managers, and sales representatives are about your clients’ businesses, the more effective they will be in mapping your products and services to your clients’ needs and creating financial products and transaction structures that work. Gaining deeper understanding through a course such as GFMI’s Financial Statement Analysis will help you increase your profitability and identify potential credit losses early on.
What should financial professionals know about financial statement analysis?
In order to be able to analyze client needs and drive sales and profits effectively, your lenders or lending team should have at least a foundational knowledge of financial statement analysis. They should be able to:
- Speak the language of critical accounting and financial issues
- Uncover trends and opportunities by relating how economic movements affect their clients’ businesses, which are reflected in the financial statements
- Have meaningful interactions with their clients and senior management
- Ask more pointed and thoughtful questions, by understanding the nuts and bolts (represented in the financials) of their clients’ businesses
- Discover opportunities to source more value-added sales as a result of understanding their clients’ P&L (profit & loss or income statement)
- Think through how internal and external factors might impact their clients. For example, is a liquidity crunch around the corner? Is there FX risk? Interest Rate risk? Hedging exposure? Excess cash? What questions can we ask our clients that will help us identify challenges and opportunities? What transactions and product solutions can we offer?
Your team should be able to use their clients’ balance sheets, income statements, and statements of cash flow as tools to evaluate the inside story. They should have the knowledge of how to read and decipher these statements in conjunction with news and current events since they are key to identifying your clients’ concerns and needs. And they should be able to use this very approach in looking at their clients’ competitors in order to get an idea of their peer group and which companies lead the pack.
As a part of comprehensive financial statement analysis, your bank relationship managers should study the footnotes to the financial statements to gain both an understanding of how their client conducts its business as well as its financial position. They should be able to find the right information that will give them insight into their clients’ businesses, operations, and what the potential sales and product opportunities might be. “SWOT” is a key factor in analyzing where the strengths, weaknesses, opportunities, and threats exist.
Outcomes of financial statement analysis
In the end, professionals who can effectively fill the gap in being able to “talk the talk” with senior management because of their financial analysis skills, and demonstrate their expertise, provide value not only for their clients, but also for their firms. Knowing what worries senior management and why, and—more importantly, what to do about it, why and how—enables your professionals to proactively identify previously missed opportunities and match your products and services to their clients’ needs, reduce credit losses, and increase profits.
