Financial analysis can be utilised in order to serve a great many purposes in an organisation. Two factors have an influence on the choice of unit of financial analysis. These are the:
- The purpose of the analysis
- The cost of the information needed to perform the analysis
However, in the area of marketing, financial analysis it has four major functions:
- To gauge how well the marketing strategy is working (situation analysis)
- To evaluate marketing decision alternatives
- To develop plans for the future
- To regulate activities on a short-term or-day to-day basis.
In effect, these four functions make up what can be called the “Marketing Financial Analysis Circle”.
What Is The Marketing Financial Analysis Circle?
There are four key functions which are associated with the Marketing Financial Analysis Circle. These are:
- Financial situation analysis
- Financial evaluation alternatives
- Financial planning
- Financial control
For each of these four functional areas, where financial analysis is handy in marketing, there are a number of activities which are associated with this.
Financial Situation Analysis (How Well Is The Marketing Strategy Working?)
This involves the study of:
- Comparative analysis
- Present financial strengths
- Limitations for the whole organisation, brand or component of the organisation, e.g. transportation.
Financial Evaluation Of Alternatives
Evaluating alternatives, from a financial point of view, involves the study of a number of factors such as the marketplace and competitors. This evaluation is used for decisions about:
- Introducing new products/delete mature products
- Expanding the sales force or doing more advertising
- Deleting a market operation, e.g. closing a Board depot or increase the sales fleet
- Moving into a new market(s)
- Building a new depot.