Usage of predictive finance for financial statements

[Saritha_K]

Hi Experts,

I am new to predictive analysis concept and need your inputs for solving below requirement.

We have got balance sheet, cashflow statement, income statements for two companies.

How can we make use of predictive analysis to determine which performed better or not based

Came across a recent blog posted by Pierpaolo VEZZOSI on  exploratory analytics which helps in finding out insights automatically.

Can it be used for my requirement?

Regards,

Saritha K

[PPaolo]

Hello Saritha,
as Antoine says, you should have information coming from many companies not just two if you want to use advanced analytics.

For your specific problem here is one way you could proceed (there might be others, more suggestions are welcome):

- first of all you should define what you mean by "performance" of a company and you should be able to measure it (e.g. the margin, the dividend paid, the growth or a calculated KPI taking into account various of such measures).  Already by defining this 'performance' you can compare your two companies and see which one performs better, you don't need an advanced analytics solution for that.

Then, if you want to use an advanced analytics solution for more in depth analysis you can:

- gather the input information from multiple companies and calculate their "performance"

- provide this dataset (1 row per company) to SAP Predictive Analytics and run a Regression on it to understand how the performance is related to the company information.

- once the model is created, check if it is a good model looking at its predictive power and predictive confidence (Ki, Kr)

- if it is a good model then you can now see what are the input variables which mostly impact the 'performance', this lets you better understand the characteristics of a a 'good company' and, hopefully, give you some hints on how you can improve your business.

A short video about Regression is visible here:

http://scn.sap.com/docs/DOC-62236

Hope that it helps

Regards

PPaolo

[Saritha_K]

Thank You PPaolo!

I will go through your regression video and will try to do so brainstorming on your provided inputs.

Will get back to you incase of more queries.

Regards,

Saritha K

[achab]

Hi Saritha,

I will also get back to you via email to complete on PPaolo's answer. 

Thanks

Antoine

[Saritha_K]

Thank you for all your help..

[achab]

Hi, can you please be so kind to flag the post as Answered if you feel it's OK.

Thanks

Antoine

[achab]

Hi Saritha,

Is it possible to get a little more information on the use case you are trying to achieve?

• What is your output variable? (eg: what do you mean by performed better)
• What would be the content of your typical dataset?

I am afraid that it will be difficult to draw any conclusions using Predictive Analytics in case we have only two rows - the two companies you mentioned.

Best regards,

Antoine