AI for Accounting and Finance Blog

How Virtual CFOs Analyze Profitability on Financial Statements

Posted by Joerg Joergensen on Dec 26, 2019 8:43:00 AM
Joerg Joergensen
Find me on:

Profitability is just one of the many goals of a successful business. But even the best CEO may be in the dark when it comes to knowing if their business is sailing along - or quietly sinking. That’s why an outsourced CFO can be a valuable asset to a management team.

How Virtual CFOs Analyze Profitability on Financial Statements

Profitability reporting is just one of the ways that an outsourced CFO can make a great impression - fast. The following is an excerpt from our webinar, Top 10 Outsourced CFO Quick Wins. If you currently offer or are considering offering outsourced CFO services, and this webinar is an ideal way to prove your value quickly.

The 5 Key Factors to Profitability Analysis

As part of a senior management team, you’ll need to get on board quickly, learn the business, and show the leaders where and how to make critical improvements.  One way to do that is by analyzing current profitability and understand what is happening behind the numbers. Below are the five key profitability metrics to focus on out of the gate.

#1  Revenue

While you want to look at how much revenue the firm is generating, you’ll also want to investigate trends. What is the percentage of increase or decrease in revenue in recent periods, and what were the reasons behind it? Is revenue concentrated with a few key customers or sources, and if so, how is the company dealing with the potential risk of losing that key revenue driver?

Other valuable metrics include average revenue per customer, per employee, per shift, and similar appropriate metrics to look for opportunities for improvement. You’ll also want to look at recurring revenue, especially if it’s a SaaS company.

#2  Profits

While you’ll want to do a profitability trend analysis, you’ll also need to take a deeper dive and understand what is included in those profits.  Are there any line items that are being included - or excluded? If so, how much will profitability change?

This is a great opportunity to understand and correct potential issues. As an outsourced CFO and part of the management team, you’ll have the chance to address these factors and make necessary course corrections.

#3  Operational Efficiency

You can also see how effectively the organization is handling their assets. Do they pay their bills on time, and collect on accounts receivable promptly? What is the inventory turn, and are there items that should be removed or discontinued? 

You can make a direct impact by changing A/R and A/P standards. It will also allow you to work with peers in different departments as you uncover opportunities for improvement.

#4  Liquidity

Cash flow is the lifeblood of business. Analyzing current assets will discover A/R aging and investments, uncovering opportunities to improve cash flow. You can also review interest coverage and current liabilities to reveal how the company can improve liquidity.

Ready to learn more about cash flow analysis?  Click here for our article that summarizes how to make an impact with a cash flow reporting for your outsourced CFO client.

#5  Returns to Investors

Whether it’s a sole proprietor using his household savings or a startup leveraging a 7 figure venture capital investments, owners and investors want to know how their investments are doing.  As an outsourced CFO, it’s your job to give them accurate reporting on how the business is doing.

Return on assets, equity, and investment are all calculations they will want to see. After you’ve done a deep dive into revenue, profitability, and liquidity, you’ll be ready to give them an accurate accounting of how their investments are performing.

Ready to Learn More?

For more tips on how to make an impact as an outsourced CFO, visit our webinar, our webinar, Top 10 Outsourced CFO Quick Wins, and leave us a reply below with any comments you may have.

Top 10 Outsourced CFO Quick Wins | Watch the Recording

Topics: Outsourced CFO

Download Free eBook: The Future of Accounting Technology
AI Can Be a Game-Changer for Your Firm’s Growth and Profitability | Schedule a Complimentary 30-Minute AI in Accounting Consultation

Recent Posts

Privacy Policy