Financial Planning and Analysis

Updated on January 3, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What is Financial Planning and Analysis?

Financial planning and analysis (FP&A) is the process of budgeting, analyzing, and forecasting the financial data, which can help the organization to be aligned to its financial goals and also support strategic business decisions of the company; it also helps an investor to know if the company is stable and profitable enough for the investment.

Financial Planning and Analysis

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FP&A forms an integral part of any firm’s operations; this kind of analysis and forecasting helps the business know the historical trends and anticipate the upcoming trends. This is a pure number-driven process where business analysis also provides some qualitative output for the management; depending on the need and requirement, the company can decide which analysis needs to be considered.

Financial Planning and Analysis Explained

Financial planning and analysis is the process of budgeting, planning, and executing the financial roadmap to the company’s daily expenditures and overall growth plan. A financial Planning and Analysis director forms an integral part of any organization that can help make futuristic decisions for the company based on the analysis of the data.

BudgetingBudgetingBudgeting is a method used by businesses to make precise projections of revenues and expenditure for a future specific period of time while taking into account various internal and external factors prevailing at that time.read more, Forecasting, Analysis, and Planning are the primary functions of the FP&A, which draws a fair picture for senior management like the CFOCFOThe full form of CFO is Chief Financial Executive, and he or she is a top level executive of the firm who is responsible for the firm's overall finance functions and has the authority to make financial decisions for the organization. read more or CEOCEOChief Executive Officer is the full form of CEO. He is the most senior member of a corporate organization, an executive who oversees the whole administration and operations of the company and reports directly to the board of directors and chairman, with the sole purpose of generating wealth for the company's stakeholders and shareholders. read more to make any major corporate decision.

Cash flow management and FP&A prove to be pillars for the company’s growth, which eventually will generate profits year on year.

Data used to analyze here can be either Quantitative or Qualitative, based on which the analysis can be carried forward to evaluate the company’s progress towards the set goals and objectives.

It considers business and economic scenarios and historical trends to anticipate future potential obstacles and, simultaneously, forecast the company’s financial results.

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Purposes

Let us understand why large companies dedicate a significant chunk of their time and resources in hiring a financial planning and analysis director by understanding the purpose of the same.

Importance

The financial health of an organization is the prime concentration point for any organization for obvious reasons. The financial planning and analysis software gives them important insights that help them make better decisions in terms of their growth plans or other developmental aspects. Let us understand the importance to completely understand the concept’s intricacies.

Financial Analysis and Planning vs. Business Analysis and Planning

Some factors differentiate these two ideologies. Both these concepts are often misunderstood for one another. Let us understand the difference in their fundamentals and implications through the comparison below.

  • In this, finance-related arrangements are centered around planning and determining inside a financial year, concentrating on meeting the quarterly or YoY target. Other functional teams intend to reduce expenses instead of foreseeing up-and-coming business issues. The analysis is centered around recorded revealing and standard reports joined with worthless models. Reports and data are regularly obsolete and not adjusted to key business drivers. The business analysis approach includes exercises from capacities critical to pushing the business ahead – for example, marketing, sales, and operational management – all lined up with the organization’s key vision. As opposed to focusing on only budgetary or financial valuation, the organization coordinates key useful regions that straightforwardly impact business results.
  • While evaluating the financial numbers, reflect the financial picture of any company. However, some executives feel that the reality of new and changing business trends is not included in these numbers. This puts out a whole picture for making any management decision for the company. It is based on available data, and Business analysis helps the management know the vibe in the market about any particular business.
  • Some corporates are also of the opinion to change the FP&A to Business planning and analysis due to the wide horizon it covers for analysis; numbers from Financial analysis might help any company make a decision. Still, it might be from a short-term perspective, while business analysis will create a more realistic report based on the ongoing trends in the economy.

Recommended Articles

This has been a guide to what is Financial Planning and Analysis. Here we discuss the purpose of FP&A, its importance, and differences between FP&A and BP&A. You can learn more about it from the following articles –

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