Determining the return on investment for any business expense is a crucial part of running a lean operation. The tighter the controls on the financial side of the house, the greater the ultimate profit margin. Financial analysis helps businesses determine where money is best spent and what areas of weakness need to be addressed. Financial modeling helps businesses view financial decisions with concrete numbers based on quantitative analysis of current financial structures. The applications are endless, but it takes considerable expertise to produce models that apply to real world situations. Getting the best possible analysis is a crucial part of strategizing for future investments.
How Financial Modeling Works
Financial modeling takes into account current and historical data to make predictions about future market behaviors. Different industries find it helpful for different reasons. Real estate investors use modeling to track and predict fluctuations in property resale values. Accounting firms use modeling to judge the financial health of an organization. Investment firms use these techniques to determine the best way to package investment opportunities. In all cases, having concrete, mathematical models helps companies make decisions regarding future spending.
Finding the
Right Analyst
A big part of the equation for financial analysis is the person(s) doing the data collection and comparison. Not every consultant has the same view points or expertise. Working solely with local providers offers increased communication opportunities, but often sacrifices the big picture view. Locals tend to see things that only affect local markets and miss out on macroeconomic influences that affect all markets. For example, a local analyst for a real estate company in 2008 may have missed some of the warning signs for the coming recession. After all, property values showed strong upward trends, and only someone with a knowledge of banking finance, in addition to a real estate background, would have expressed concern about the bubble bursting so suddenly.
A wider view of the global economy offers increased efficiency to financial analysis. The more factors input on a mathematical model, the more accurate the results. Using offshore financial analysts offers a greater range of expertise and added information. American analysts tend to focus on the American market and how it affects other country's economies, without realizing the effect that international events have on the local economy. American analysts continued to predict stock market increases long after all the signs were there of a big downturn.
Offshore Analysis Gives Better Oversight
Choosing to use offshore consultants for generating financial models gives businesses access to more data and better predictive capabilities. The slowdowns due to dealing with different time zones and communication lapses are more than made up for in accurate predictions. Local analysis plays an important part of a total financial picture, but companies cannot afford to ignore the global view. International events make large impacts on local markets. Unrest in the Middle East, the tsunami in Asia and many other factors come into play when making investment decisions. Thinking globally is not just for large international corporations. The globalization of manufacturing makes overseas issues a problem for every business. Offshore financial modeling offers the best opportunity to take into account as much information as possible when making forecasting decisions.