A Beginners’ Guide To Financial Statement Analysis

Financial statement Analysis

For any start-up business to run in the first place, you as an entrepreneur need to always have a very clear vision of your finances. You need to have a proper business structure, with an inventory and make a roadmap accordingly. To do any of that, you need to have the proper assessment, knowledge, and information about where the business is and where it is headed. A tangible form of that is financial statements. Through Financial Statement Analysis, you as an entrepreneur will get help in gaining proper insight into a company’s financial position by reviewing them.

Financial statement analysis, in the long run, is beneficial in making better economic decisions. In fact, in case of running an SME with no to little formal accounting logistics in place, it might lead to endless difficult situations with record keeping and generating reliable financial records. As these financial statements streamline your operations and help to give your business the right direction. Your company’s finances reflect in the consecutive documents and reports.

Hence, financial statements are an important tool for the top management to have a clear picture of their business.
You can create a strong business plan in half the time with twice the impact. Now, that we know the importance of financial statements, it is now integral to understand how they can be obtained. And the answer lies in- Bookkeeping services!

If you come to think of it, it is bookkeeping that helps create a tangible record of all your financial transactions, payroll, inventory, tax preparation, and filing and every other facet of your finances. So, if your bookkeeping is organized, has a schedule and is efficient, chances are, that your financial statements will always be updated and reliable.

Thus, as a business owner, you need to understand the importance of financial statement analysis in running your business and how that can seamlessly be achieved through Bookkeeping.

Let’s talk about the possible benefits?

The value of financial reporting cannot be overscored.

Below are the various unique benefits of analyzing financial statements.

  • Financial reports form the backbone for better financial planning, analysis, benchmarking and prompt decision making.
  • Moreover, financial reports help organizations to raise capital both domestic as well as overseas. Facilitates to analyze the performance of the organization as well as the management.

Let us now discuss some of the main Prime Objectives of such an Analysis:

It’s a fact that in order to figure out the upcoming future prospects of the company, it is important to analyze the past performance. Past performances can be analyzed and evaluated in the following ways:

  • Reviewing the trend of past sales
  • Cash flows
  • Profitability
  • Return on investment
  • Operating expenses
  • Debt-equity structure.
  • Financial Analysis helps in taking loan decisions by financial institutions, banks and loan agencies.
  • It helps in determining the credit risk, deciding the terms and conditions of a loan if in case it gets sanctioned, interest rate, maturity date, etc.
  • Moreover, financial statement analysis helps in the prediction of growth and profitability aspects of the company in order to judge the earning capacity of the enterprise.
  • Overall, with the help of financial statement analysis assessment and prediction of bankruptcy and the probability of business failure can be done.

Conclusion

Financial statement analysis plays a critical role in shaping your financial goals. And that back with the right bookkeeping gets you ahead of your forecasts.

Going further, it will let the business model to shaping which would help you to focus on other areas of operations in your business.

Therefore, it may be a wise decision to first view the industry dynamics and their business models which would guide to investigate and dig deeper into new ideas!

Accounts Confidant believes in getting a clear understanding that as an entrepreneur it is not a cup of tea to handle tedious tasks like Financial Statement Analysis, in case you have any questions regarding this topic that you were not able to perceive, please talk one on one with one of our accounting experts here at Accounts Confidant directly by calling us on our toll free number today on +1-888-660-0575.

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