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October 30, 2019How To Analyze A Financial Statement?
When you run a company, then mainly you will have three different kinds of financial statement. These statements will include the income statement, cash flow statement and balance sheet. That also means that you need to know how to analyse a financial statement in a proper manner to run your business in a smooth and fluent manner. Some people can assume that it is not an easy task to analyze a financial statement while others may claim it as impossible task for people that are not from accounts background.
I politely disagree with both of these statements. As far as impossible part is concerned, many people are doing it with some efforts, so you can also analyse once you learn it. Talking about its toughness, indeed, it is not an easy to analyse, it but if you know how to analyze a financial statement, then things will not be very much complicated as well for you. For helping you more in this requirement I can tell you how to analyze a financial statement and how to get the maximum benefits with it for your business.
Check your balance sheet:
you have to understand that your balance sheet is the core of your financial statement and if you don’t analyze it properly, then it will not give any positive result to you. If we talk about the most basic thing of balance sheet, then it includes two basic things that are liabilities and equity. These two factors are the actual assets of your company and when you maintain or analyze your balance sheet, then you must need to check this thing to analyze your financial statement. This formula explains the actual worth of the company and it also explains what kind of growth you can expect from that company.
When you analyze a financial statement, then you also need to know about things that are owned by a company. Generally, you can include all the assets in this category, but if you want to do it properly, then you must need to break down the same into some specific categories including current assets and non-current assets. All the cash and things that you can convert into cash in current financial year come under the category of current assets while things that are needed by company to do its work are known as noncurrent assets. These noncurrent assets can include property, furniture, equipment’s, etc. So, make sure you analyze this in your financial statement in a proper manner.
Income statement:
To analyze your financial statement, first you need to check your balance sheet and assets and after that you need to check your income statement as well. When you will check the financial statement of a company, then you will have to check statement as well. Understanding income statement is not a very difficult task because it include only two things. First the sales of the company and second all the expenses that a company did in any particular time frame. All the money that is saved during this period between sale and expenses are normally known as income of the company.
While balance sheet is snapshot in time, income statement can be divided into various time frames. If you want to check the income statement of a particular time frame, then you can do that with the help of this option. You can check the same with reported time and you can get results accordingly. This kind of time frame figures can help you track a lot of things in a number of ways. For example, if you want to compare the sales or income of your company during a particular time frame for current year and previous year, then an income statement can help you do that. Other than this, if you want to compare the earning of your company for entire year, then you can do that also with this option. It can also help you compare or calculate the margin with your competitors and that can help you get more trust from your share holders.
The cash flow statement:
In your financial statement review, you need to check the cash flow as well. You have to understand that the proper cash flow into your business and out of it is really important. If you fail to analyze either of these things, then you will fail to make a proper and actual financial statement for your company. This is quite a confusing task as well and that is why you need to pay minute attention on this. To understand this in much better way, you can take a simple example of company and its net profit.
If a company says, it got net profit of a $1 million in any current financial year, then it doesn’t mean the cash in its balance sheet is increased by $1 million. You will have to relate it with the income statement, assets and your cash flow as well. If you do not relate all the three things together, then you will not be able to get any positive result for same. Hence, it is advised that when you analyse your financial statement, then you check the balance sheet, income statement and cash flow as well. once you will have all the =three things with you, then you would be able to take your decision in a much better manner.
Although I said, you can analyze the financial statement of your company by yourself, but you also need to understand that it is not a one day task. To understand it completely you will need to give good amount of time and efforts into this. Other than this, you also need to make sure that you do not take any decision unless you are sure about the final result. To avoid that issue, you can also take experts help and you can understand the same with their help. It will certainly help you get good outcome and you will not have any kind of complication or trouble in its understanding.