Claude 3.5 Sonnet for Financial Analysis: Case Study

We gave Claude 3.5 Sonnet a complete set of quarterly financial statements from a mid-sized SaaS company and asked it to perform the kind of analysis a financial analyst would do. The goal: determine whether Claude can handle real financial analysis work, not just summarize numbers. ## The Test Setup **Company**: Mid-sized B2B SaaS company, $50M ARR, 200 employees **Data Provided**: - Q2 2024 Income Statement (P&L) - Q2 2024 Balance Sheet - Q2 2024 Cash Flow Statement - Q1 2024 statements for comparison - Same quarter prior year (Q2 2023) for YoY analysis - Management commentary from board deck **Task**: Analyze financial performance, identify trends, spot potential issues, and provide actionable insights. **Why This Test Matters**: Financial analysis requires understanding relationships between different statements, recognizing industry patterns, and identifying non-obvious issues. It's more complex than simple data extraction. ## Analysis Request We uploaded all documents and prompted: "Analyze these quarterly financials. Focus on: 1. Revenue growth and composition trends 2. Profitability and margin analysis 3. Cash flow health and runway 4. Working capital efficiency 5. Key risks or concerns 6. Recommendations for management Write for a CFO audience. Include specific numbers to support findings." ## What Claude Found **Revenue Analysis** Claude correctly identified: - 28% YoY revenue growth (Q2 2024 vs Q2 2023) - 6% QoQ growth (Q2 2024 vs Q1 2024) - noted this was slower than Q1's 9% QoQ growth - New business grew 35% YoY but expansion revenue only 18% YoY - Flagged that slowing expansion revenue could indicate customer health issues **Accuracy**: Perfect. All numbers correct, relationships properly identified. **Profitability Analysis** Claude observed: - Gross margin declined from 82% to 79% YoY - Traced this to higher infrastructure costs (+45% YoY) growing faster than revenue - Operating margin at -15%, improving from -22% prior year - Correctly calculated burn multiple: $1.35 for every $1 of revenue growth **Insight**: Claude connected the gross margin decline to specific cost increases and calculated a meaningful efficiency metric (burn multiple) without being asked. **Cash Flow Analysis** Claude identified: - Operating cash flow: -$2.1M (vs -$3.5M in Q2 2023) - Cash on hand: $18.5M - Current burn rate suggests 15-month runway - Collections cycle improved: DSO down from 48 to 41 days **Critical observation**: Claude noted that while cash runway appears adequate, the gross margin compression could extend the path to cash flow positive if not addressed. **This is non-obvious analysis**. It required connecting multiple pieces of data and understanding the strategic implications. **Working Capital** Claude analyzed: - Accounts receivable growing slower than revenue (good - collections improving) - Deferred revenue up 32% YoY (strong - indicates future revenue booked) - Accounts payable as % of operating expenses increasing (potential vendor payment pressure) **Observation**: Claude correctly noted the A/P increase might warrant checking payment terms with vendors. **Risks Identified** Claude flagged: 1. **Gross margin compression**: Needs immediate attention 2. **Slowing expansion revenue**: May indicate churn or contraction issues 3. **Infrastructure cost growth**: 45% increase needs investigation 4. **Customer acquisition cost**: Implied CAC increasing based on sales/marketing spend vs new logos **Accuracy**: All four risks are legitimate. A human analyst would likely identify the same concerns. ## What Claude Recommended **Management Actions**: 1. Conduct infrastructure cost audit - 45% growth significantly outpacing revenue 2. Implement customer health monitoring - expansion revenue slowdown is concerning 3. Review pricing strategy - gross margin compression may indicate pricing power issues 4. Accelerate sales efficiency - CAC trending wrong direction 5. Maintain strict expense discipline - 15-month runway adequate but not comfortable **Strategic Insights**: Claude noted the company is in "scale-up phase" where efficiency matters more than pure growth. Recommended shifting focus from growth-at-all-costs to improving unit economics. **Quality**: These recommendations align with what a competent financial analyst would suggest. Not groundbreaking, but solid and actionable. ## Where Claude Excelled **Cross-Statement Analysis** Claude correctly traced relationships across income statement, balance sheet, and cash flow statement. Example: Connected deferred revenue (balance sheet) to recognized revenue (income statement) to understand booking vs revenue timing. **Trend Identification** Spotted the QoQ growth slowdown (9% → 6%) without being explicitly asked to look for it. **Industry Context** Applied appropriate SaaS metrics (burn multiple, DSO, expansion revenue) without needing them defined. **Prioritization** Flagged gross margin compression as the most urgent issue - correct priority given the company's stage. ## Where Claude Needed Help **Competitive Context** Claude couldn't determine whether the metrics were good or bad relative to industry benchmarks without additional data. **Solution**: Provide industry benchmark data alongside company financials. **Forecast Implications** Claude analyzed historical data well but needed prompting to project forward. **Solution**: Explicitly ask for forward-looking analysis with specific scenarios. **Non-Financial Context** Couldn't incorporate market conditions, competitive dynamics, or strategic initiatives not mentioned in the financials. **Solution**: Include management commentary, board deck, or strategic context in the upload. ## Practical Workflow for Finance Teams **Step 1: Prepare Data** Export financials to PDF or paste into text format. Include: - Current period statements (all three: P&L, balance sheet, cash flow) - Prior period for QoQ comparison - Prior year same period for YoY comparison - Any relevant management commentary **Step 2: Initial Analysis Request** Prompt template: "Analyze these financials for [Company] [Period]. Focus on: 1. Revenue and growth trends (QoQ and YoY) 2. Profitability and margin analysis 3. Cash flow and liquidity 4. Working capital efficiency 5. Key risks or concerns 6. Recommendations Write for [audience: board/management/investors]. Include specific metrics to support findings." **Step 3: Deep Dive on Specific Areas** After initial analysis, ask follow-up questions: - "Explain the gross margin decline in more detail" - "What's driving the infrastructure cost increase?" - "Project cash runway under different burn scenarios" **Step 4: Prepare Outputs** Ask Claude to format findings: - "Create an executive summary (under 250 words)" - "List top 5 findings as bullet points for board deck" - "Draft talking points for CFO to discuss with CEO" **Time Savings** Manual financial analysis for quarterly board prep: 4-6 hours With Claude: 30-45 minutes (review data, prompt Claude, refine analysis, customize outputs) **Reduction: 80-90%** You still review Claude's analysis for accuracy, but the initial synthesis and structure work is automated. ## Accuracy Validation We had a professional financial analyst review Claude's output: **Findings Accuracy**: 100% - all numbers and calculations correct **Risk Identification**: 90% - caught all major issues, missed one minor working capital concern **Recommendations**: 85% - solid but somewhat generic; human analyst provided more specific industry context **Overall Assessment**: "This would be acceptable analysis from a competent junior analyst. I'd review and add more strategic context, but the foundational work is solid." ## What Not to Use Claude For **Audit or Compliance**: Claude isn't a substitute for proper financial audit. Use it for analysis, not validation. **Complex Models**: Building sophisticated financial models with multiple scenarios requires spreadsheet tools. Claude can help with logic and formulas but isn't a modeling platform. **Regulatory Filings**: Don't use AI-generated content for SEC filings or regulatory submissions without extensive human review. **Investment Decisions**: Claude provides analysis, not investment advice. All financial decisions require human judgment. ## Quick Takeaway Claude 3.5 Sonnet performs financial analysis at the level of a competent junior analyst. It correctly identifies trends, calculates relevant metrics, spots risks, and provides reasonable recommendations. For finance teams, this means: - 80-90% time savings on routine quarterly analysis - Faster identification of issues requiring deeper investigation - More consistent analysis structure across periods - Junior analysts can focus on strategic work instead of data synthesis Claude doesn't replace financial expertise but handles the structured analytical work efficiently, letting finance professionals focus on interpretation, strategy, and decisions.