How much better can your financial institution perform this year?
As a leader of a financial institution, you’re responsible for your business’ current financial position. While you lead many initiatives, meeting your financial goals and financial metrics is priority. It affects your stakeholders, including the individuals you serve in your community.
They rely on your financial stability and sustainability, expecting that your institution will be in their community for years to come as their connection to quality financial services.
Your current financial position is made up of three basic financial statements:
Your balance sheet which shows your assets, liabilities and equity on a stated date
Your income statement which shows your business’ net income over a period of time
Your cash flow statement which shows how cash is coming and going over a period of time
At Oradian, we work with leaders of financial institutions to better understand their current financial position. We focus on key elements of your balance sheet, your income statement and your cash flow statement.
By offering you a customised cost-benefit analysis, we are enabling you to have more clarity about where and how you can improve your business’ financial position.
Know your balance sheet, know your net worth
As explained by BBVA, a leading global financial services group, a bank’s balance sheet is, “a key way to draw conclusions regarding a bank’s business and the resources used to be able to finance lending.”
Your balance sheet is made up of your assets, liabilities and equity or net worth. Your financial institution’s balance sheet is like a pulse point that enables you to know indicators about your business’ vitality including:
Liquidity: your ability to meet your obligations to your funders
Solvency: your credit quality and indebtedness
Profitability: your ability to generate profit from your allocated capital
Before you can start improving these metrics, you need to have detailed insight into your balance sheet. When you have clarity about the specific line items within your assets, liabilities and equity that are affecting your liquidity, solvency and profitability, you can take informed next steps toward improvement.
Your income statement provides insights about your performance
Your income statement shows your revenues, expenses, gains, and losses. While income statements can be called by a number of titles, like an earnings report, operating statement or profit and loss account, it primarily includes:
Your revenues from your activities
Your gains from selling any assets
Your expenses from your activities
Your losses from selling your assets
The bottom line of your income statement shows if you are operating at a net gain or a net loss. This tells you about your profitability: if you are spending more than you are earning or earning more than you are spending. In summary, your income statement speaks to your ability to operate profitably.
Your cash flow statement shows how effective your operating activities are
Your cash flow statement is a report about how your business and its activities generated cash and used cash over specific period of time. Your cash flow statement shows how your business is bringing cash in or spending cash on your:
Your cash flow statements can be used in a few different ways. One of the primary uses is to compare your financial institution’s net income to the cash your operating activities generate. A general rule is that the net income you report should turn into cash.
Use your financial statements to make wise business decisions
Your financial statements are crucial pieces of information that guide your strategic decision-making. When you analyse your balance sheet, income statement and cash flow, you can calculate key performance indicators (KPIs) that gauge your bank’s health and operations. Some examples include your:
Return on Assets (ROA): the ratio of net income to average total assets
Return on Equity (ROE): the ratio of net income to average equity
Portfolio yield: the ratio of interest and fee revenue to average loan portfolio
Depending on the size and segmentation of your bank’s portfolio, your portfolio yield can be monitored on a more detailed level, such as the product or customer segment level. Looking more closely at your portfolio yield can help you respond to questions such as:
How profitable are our individual portfolio segments?
How fast are we collecting our interest revenue within each segment?
Which sources of funding are the most cost-efficient?
How do our operating costs correspond to the size of our portfolio?
Conducting a cost-benefit analysis with Oradian
For our community of financial institutions or institutions considering joining, Oradian enables leaders of financial institutions to build a cost-benefit analysis using key elements of their balance sheet, income statement and cash flow statement. This cost-benefit analysis is a tool for analysing your decisions regarding your institution’s IT system and IT strategy.
Oradian’s cost-benefit analyses are led by Oradian’s Business Development Managers and designed to highlight the differences between buying your own on-premise IT system versus subscribing to Oradian’s cloud-based core banking platform. The analyses cover a variety of cost considerations including:
Maintenance and back-ups of the system
Upgrading your system
Hiring IT specialists to fix bugs
Cost for software maintenance
Use of VPN connection
Cost of user licenses
Buying, maintaining, repairing and upgrading servers
Investments on any IT infrastructure
Licenses for servers
Additional licenses per new branches or users
Cost of time spent training your staff on IT security
Cost for performance monitoring
Paperwork and printing
Travel between branches, head office and clients
Duplication of work
Downtime or interruption of operations
Lost employees and knowledge
With a cloud-based banking platform, customers in rural areas reported an average reduction of 60% in costs for opening a new branch, allowing them to rapidly expand.
Improving your financial position with informed decisions about cloud technology
The cloud frees you from installing and managing your own networks, servers, operating systems, storage and software – reducing your upfront capital costs and eliminating the need to hire specialist IT skills. Another benefit of the cloud is that you can access your data, software and applications from a mobile device or a computer if you have access to the Internet.
Your IT strategy and your decisions regarding technology affect your current financial position. These expenses and their implications will show up on your balance sheet, your income statement and your cash flow statement. It’s essential that you are making informed decisions when selecting any kind of technology, especially when it comes to core banking platforms.
Schedule your free cost-benefit analysis with Oradian now