Regular financial analysis is crucial for your production company’s ongoing success.
Financial analysis is essential for maintaining the strength and success of a production company. It helps you identify strategic investment opportunities, create effective budget plans, and keeping costs in check. This analysis is crucial for determining the profitability of different productions and assessing potential risks. Think of it as a roadmap that guides intelligent decision-making, attracts investor support, and enhances overall financial performance.
Every company should pay attention to its current financial state. It has immeasurable value in helping you make the smartest decisions you can. This knowledge is critical for future business ventures and financial projections – and serves as an orientation point when deciding on the direction in which your company will move.
Proper financial analysis is complex and requires a clear understanding of the relevant data. You must approach the task with care and attention to get an accurate picture of your company’s financial position. Let’s take a look at the key steps to get started with financial analysis.
Essential Steps to Conduct Effective Financial Analysis
Step #1. Analyse the Value Chain of Your Production
Value chain analysis is a process that identifies activities related to the creation and distribution of your production. Looking at the breakdown of content creation, logistics, operations, and infrastructure will help define the actual value – and this can reveal areas of competitive advantage and identify gaps to improve efficiency.
This process involves a thorough examination of internal activities to determine which are the most valuable and which need improvements. Reviewing individual steps in your process and their costs will give you valuable insight into the basic expenses of your production.
Step #2. Review Financial Statements
When you review financial statements, it’s important to understand the vital components and terms. Here are some brief explanations of what you might see in your financial information:
- The balance sheet will usually be your main focal point. This statement presents assets and liabilities, as well as equity, on an annual basis.
- Under assets and liabilities, you’ll encounter both current, which is expected to last for less than 12 months, and non-current, which will last for more than a year.
- Dividing total assets by total liabilities will give you the current ratio, which is a reliable way to assess your company’s ability to fulfil all ongoing obligations.
- Subtracting liabilities from assets produces the book value, which expresses the shareholder capital and company profits.
Step #3. Measure Risk and Potential Profit
Once you get a firm grip on your financial statements, you should examine how profitable your business is at the moment and compare that to the company’s assets and equity.
Doing so will help you understand how well you can deal with the market’s risks and challenges.
The crucial aspect of this step is comparison – you’ll need to look at current and historical data, as well as your competitors’ figures and marketplace averages.
Step #4. Create a Forecast
To make the most of the analysis, you should use the gathered information to create a financial forecast. The forecast will be based on your assumptions about how your business will grow and the market situation in the foreseeable future.
When you build a forecasted statement, it serves as a valuable tool for detecting areas of your business that could be improved. It will also prepare you for challenges that might lie ahead.
Analyse, Plan, and React
Dealing with the challenging task of financial analysis shouldn’t be an isolated effort. The point of developing a thorough understanding of finances is to formulate a strategy and execute it efficiently. Cut down the costs where you can, prepare a precise plan of action, and be ready to push your production business in the right direction.
Optimise Your Business with Atek’s Financial Analysis
If you would like support in analysing your production company’s financial position, give us a call. We have a passion for the performing arts, and we love looking at numbers.
We can help you make sense of the data and use it to make the right decisions for your company. Don’t spend another day wondering if you are in a good position and making the right calls – our support will give you clarity and the awareness to define and execute solid business plans.
Get started now and watch your business grow!
Keep reading: Atek’s Quick Guide to Theatre Tax Relief >