From Spreadsheets to Sankey: A Better Way to Visualize Financial Data

The Spreadsheet Default

Financial analysis lives in spreadsheets. Excel, Google Sheets, or their successors—these tools are the workhorses of finance. And for good reason: they're flexible, powerful, and familiar.

But spreadsheets are primarily designed for calculation, not visualization. When you need to understand the structure of a company's finances, looking at cells arranged in rows and columns is like reading a map made of coordinates rather than actually seeing the terrain.

What Spreadsheets Do Well

Let's be clear about where spreadsheets excel:

• **Precise calculations**: Formulas, functions, and cell references handle arithmetic perfectly
• **Data manipulation**: Sorting, filtering, and pivoting large datasets
• **Model building**: Financial models with inputs, assumptions, and outputs
• **Auditability**: Trace calculations through cell dependencies

These capabilities aren't going anywhere. Spreadsheets remain essential tools.

Where Spreadsheets Fall Short

Understanding structure and proportion—that's where spreadsheets struggle:

The Scanning Problem

Looking at a column of numbers, you scan top to bottom, comparing values. But the relationships between those values aren't represented visually. Revenue is in row 1, cost of goods sold is in row 2—you know one comes from the other, but you're reconstructing that relationship in your mind.

The Proportion Problem

Is $50 million a lot? Depends on context. If revenue is $500 million, that's 10%—significant but not dominant. If revenue is $5 billion, it's 1%—probably noise. Spreadsheets show the number; you calculate the proportion.

The Comparison Problem

Quarterly comparison means looking at column B versus column C versus column D. Your eyes jump back and forth. You might use conditional formatting to add color, but that still requires processing.

How Sankey Diagrams Complement Spreadsheets

Sankey diagrams serve a different purpose: they visualize structure and flow. They answer questions like:

• Where does the money come from?
• Where does it go?
• How much reaches the bottom line?
• What are the major cost categories relative to revenue?

These questions are answerable from spreadsheet data, but the answers require work. A Sankey diagram answers them at a glance.

A Practical Workflow

Here's how sophisticated analysts use both tools:

1. **Start with the Sankey**: Get the big picture. Understand the shape of the business. Identify anything that looks unusual or interesting.

1. **Dive into the spreadsheet**: Once you know what to look for, examine the detailed numbers. Build models. Test assumptions.

1. **Return to the Sankey**: Validate your findings visually. Ensure your conclusions match what the flow shows.

1. **Communicate with the Sankey**: When presenting to others, lead with the visual. Let them see what you saw.

Specific Use Cases

Earnings Calls Preparation

Before an earnings call, generate a Sankey of the expected results (based on guidance) and the actual results. Discrepancies become immediately visible, helping you formulate questions.

Board Presentations

Board members often have limited time. A Sankey diagram communicates financial performance faster than slides of tables. The visual anchors the discussion.

Personal Investment Research

Researching a stock? Start with a Sankey of their income statement. You'll quickly understand if this is a high-margin SaaS business, a capital-intensive manufacturer, or something else entirely.

The Right Tool for Each Job

Spreadsheets and Sankey diagrams aren't competing—they're complementary. Use spreadsheets for calculation and modeling. Use Sankey diagrams for understanding and communication.

The combination is more powerful than either alone.