Financial statement analysis shows the financial activities of a business in a detailed form. Through this analysis, you can easily determine the financial strengths and weaknesses of a company and the kind of relationships that shareholders share with each other. A proper and accurate financial statement analysis can help your business to grow and thrive. The financial statement records all the business’s financial data, which becomes very useful to various stakeholders. These statements are essential to monitor and get a proper understanding of whether a company is progressing towards its goals or not. The process of financial statement analysis includes income statements, balance sheets, cash flow statements.
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Income Statement
The income statement represents the company’s financial performance which generally shows the incomes and expenses incurred during a financial year. It is basically a report that a company uses in order to see how much money it has earned over a period of time. The income statements are often presented quarterly or annually.
Balance Sheet
The balance sheet provides a final summary of the financial position of the business. The book value of the company is being represented through the balance sheet. It is a simple and the easiest way to know the company’s assets and liabilities. The analysts offer a quick snapshot of how a company is performing and how it can perform in the near future.
Cash Flow Statement
The cash flow statement shows the cash flow in the business during a financial year. It shows a detailed report of investment as to how a certain company receives and spends its cash. The cash flow statement also reflects a company’s ability to operate in both the short as well as in the long term. The information in the cash flow statement is used by various investors or creditors to determine whether a company is in a good financial position or not!
Using the above financial statements, it becomes easy for stakeholders to understand and assess the company’s financial performance and positions and clearly know each and every element, including revenue, expenses, assets, liabilities, and equity.
Benefits Of Financial Statement Analysis And How Does It Help A Business To Grow?
Financial statement analysis is very helpful and always benefits the organization in a great number of ways. It also helps the stakeholders, both internal and external, with the opportunity to make informed and correct decisions regarding investing. Let us go through the benefits that financial statement analysis provides to a company.
1. Helps To Determine Cash Flow:
A financial statement reveals the total revenue and liabilities that it has acquired during a financial year and also reveals the ability of the company. The sales will fluctuate over time, but it is the responsibility of the financial planners that they must identify a pattern to increase sales through the statement of cash flow. A cash flow statement is essential as the review at the end of the period will help you to know how the business is operating! This also helps to maintain and keep the expenditure of the business in moderation.
2. Know The Liability Position Of The Company:
Financial statement analysis looks into both short-term as well as long-term obligations of the business. Even if you are planning to expand your business, then you must go through all the statements of finance and accordingly apply good logic in order to reduce existing liabilities and decide whether to apply for further capital expansion or not. Proper financial statements help lenders to determine business prospects, which are based on revenues, assets, and liabilities.
3. Know The Inventory Status:
The actual percentage of purchases and sales during a given period of the year shows the business’s ability and nature and where it can grow. It shows whether the goods are in demand, a change in the trend of sales is needed or not. When goods are not moving as per the plan or strategy, it is considered a negative for the business prospect and growth.
4. Identify The Trends:
The business owner prepares a financial statement and compares it with previous years to identify the business trends. The current trend will help the business know whether they are selling the right product or not, which current segments are growing well, or you will get to know which business needs investment or complete exit at once. The ongoing trends in the market help to improve the performance of the business. In order to sustain and achieve a higher position in this competitive world, identifying the current trend becomes a necessity for every business.
5. Preparation Of Budget:
Every business must have thought about its company, creating a vision. But to prepare a vision, the business must have certain goals and objectives. Through financial statements, a blueprint is prepared by analyzing the past financial statements that are already audited. These blueprints will help to achieve future goals. Budgets help to keep the expenses in line with income and sales. Budgets will reveal how much the company has to spend on launching products, creating marketing strategies. The budgets are forecasted using financial statements analysis.
Conclusion:
Accurate analysis of financial statements is responsible for your business growth. It throws light on the importance of insights gathered by professionals that will help in the growth of a business. It is always better to know how much money is available for planning and decision-making, ensuring that the company does not spend more than expected. While each data of financial statement will vary from company to company, every document is designed to offer useful insight into the progress of the company.
Financial statements are documents that are mostly presented on an annual, quarterly, or even monthly basis. The documents in a financial statement include the company’s net assets and liabilities, as well as the company’s entire expenses and total budget. In order to prepare such vast documents, you need experts. With Perfios by your side, get your financial statement analyzed by our experts at the most affordable rate.
