Difference Between Business Analysis and Financial Analysis & How to Link Them ( Oxford Brookes Project / BSc Applied Accountancy Project / Research and Analysis Report / OBU Project
February 11th, 2025
Understanding Business Analysis vs. Financial Analysis
1. Business Analysis
Definition: Business analysis focuses on evaluating the overall operational, strategic, and managerial aspects of a company. It involves assessing business models, market trends, industry positioning, and operational efficiencies to improve decision-making and performance.
Key Areas of Business Analysis:
✔ Industry & Market Analysis: Understanding external factors like competition, customer demand, and market trends.
✔ Operational Performance: Evaluating internal processes, efficiency, and productivity.
✔ Strategic Planning: Reviewing long-term goals, business expansion, and risk management.
✔ SWOT Analysis: Assessing Strengths, Weaknesses, Opportunities, and Threats.
✔ Technology & Innovation: Evaluating digital transformation and process automation impact.
Tools Used in Business Analysis:
📌 PESTEL Analysis (Political, Economic, Social, Technological, Environmental, Legal)
📌 Porter’s Five Forces (Industry Competitive Analysis)
📌 Value Chain Analysis
📌 Balanced Scorecard
2. Financial Analysis
Definition: Financial analysis is centered on assessing a company’s financial health, profitability, liquidity, and solvency using financial statements, ratios, and quantitative data. It helps investors, managers, and stakeholders make informed economic decisions.
Key Areas of Financial Analysis:
✔ Profitability Analysis: Gross profit margin, net profit margin, and return on investment (ROI).
✔ Liquidity & Solvency: Current ratio, quick ratio, debt-to-equity ratio.
✔ Financial Performance Trends: Revenue growth, cost management, and expense control.
✔ Investment Analysis: Evaluating assets, capital structure, and shareholder value.
Tools Used in Financial Analysis:
📌 Ratio Analysis (Profitability, Liquidity, Efficiency, Leverage)
📌 Trend Analysis (Comparing performance over time)
📌 Common Size Financial Statements
📌 Discounted Cash Flow (DCF) Analysis
How to Link Business Analysis with Financial Analysis
1. Business Decisions Drive Financial Outcomes
- Example: A company invests in new technology (business decision). This reduces operational costs, improving profit margins and return on assets (ROA) (financial outcome).
2. Financial Data Supports Business Strategy
- Example: A company with low cash reserves (financial insight) might delay expansion plans (business decision) to avoid liquidity risks.
3. Market and Industry Trends Affect Financial Performance
- Example: If an industry faces new government regulations (business factor), companies must adjust their cost structures, affecting net profit margins and earnings per share (EPS).
4. Performance Metrics in Both Analyses Overlap
- Example: A strong supply chain (business analysis) can enhance inventory turnover ratio (financial analysis), leading to higher profitability.
Conclusion
Business analysis and financial analysis are interconnected. While business analysis evaluates operational and strategic aspects, financial analysis assesses monetary performance. A holistic approach that combines both ensures better decision-making, risk management, and long-term success.
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