Data mining is a very powerful field to perform preliminary analysis of dataset. Data mining borrows techniques and methods from statistics and machine learning. Using those techniques we try to find basic descriptive statistics. Data mining does not get involved with pinning down of underlying trends in data and building models on top of that.
Financial analysis of a business is performed to analyze whether an that business is stable and profitable enough to warrant a monetary investment. During this process, financial analysts would focus their analysis on the income statement, balance sheet, and cash flow statement.
Since most businesses already adapted digital transformation, traditional methods of financial analysis may not be that productive and accurate. A business may be keeping all his records in distributed databases on cloud as all its operations are online. This way of conducting business is quite common these days. It helps business to enhance their efficiency, reduce cost and grow at faster pace.
In this situations, data mining techniques can be very helpful to perform financial analysis effectively and accurately. It would allow financial analysts to drill datasets deeper and examines business activities. Following are some of the tasks where financial analysts can employ data mining techniques:
Trends in Sales:
One of key interests of financial analyst would be to understand trends, peaks and dips in sales in historical sales data. Those trends and extreme changes may be seasonal, due to promotions, unavailability of inventory or poor quality of the product. These insights would certainly help financial analyst to determine worth of a company.
If you are an online store, you may have few dozens to hundreds of products. It is important to determine current status of inventory of each product. Inventory check would allow financial analyst to determine flow of capital and speed of sales as well.
We can used data mining tools to pull net income of the company. This would allow financial analyst to study the ratio between gross profit and net sales.