Key areas to analyse on a financial statement
The cash flow statement is important because it allows you to see how readily your company can meet all its commitments as they fall due. A company can be profitable, but if a lot of the revenue generated is from accounts receivable, the cash may not be available when liabilities fall due. Remember, "cash is king".
Your profit and loss is important because it gives you an idea of how profitable your company is overall. Via profit and loss, you can look at your margins and other ratios to see how it performs in terms of generating profit relative to other players in the industry.
Your balance sheet is more of a long-term view or track record of how the company is doing.
Understanding and analysing financial statements will help you make much better business decisions
Make your financial statement analysis useful
The analysis is one of the most important elements of a useful financial report because it helps you understand the dynamics of the balance sheet. While you need your business to be profitable, you also need to sustain growth and have available resources to be reactive to changing customers' needs and the changing market.
Effective financial management requires a regular and systematic analysis of the financial records, tracking performance against budgets and targets and adjusting strategies and financial management to meet changing circumstances.
Your analysis should look at the assets used to generate profit, including fixed assets and working capital. It should also consider the relationship of debt to equity in funding business growth. The analysis aims to highlight the relationship between operations and how you fund those operations.
Collecting and manipulating information in spreadsheets is simply not adequate for a growing business. You need to look for a system that will do the heavy lifting for you when it comes to gathering and analysing data.
You need a system capable of dealing with more complex information with less potential for error. Look for a system that can gather information from various sources such as excel, MYOB, point-of-sale (POS) and till systems, rosters, inventory lists and budgets, then integrate the data into one report.
This system should be able to gather and analyse data and delivers insight on a real-time, daily, weekly or monthly basis.
Above all, analysing your financial statements or reports is both essential and beneficial for your business, providing you with better visibility into your business' performance.