The Best Use of Your Financial Statements – What Can Your Statements Tell You?
At face value, your financial statements tell you a lot about your company’s performance. The statement of profit and loss lets you know how much the company sold, and whether those sales resulted in overall profitability. The balance sheet tells you where the company stands right now, and gives you a look at the overall financial position. The statement of cash flows informs you how cash moves through your business and whether operations are supplying or draining cash. All this data is critical to your future plans, but it’s really just a small part of the total knowledge you can gain from these exceptionally enlightening reports.
When you delve deeper into these statements, and add a little math to the mix, it will open up a whole new world of information that you can use to make your business a better one. With critical analysis, the relationships among the accounts become clearer, as does the impact they can have on one another. Different ways of measuring the same numbers offer new perspectives and insights, and can spark innovative and profitable ideas.
Your financial statements can tell you things such as:
- Whether your company has sufficient liquidity
- Whether the company is holding too much inventory
- Whether you need to revisit customer payment terms
- Whether you’re charging enough for your products and services
- How to put your assets to better use
- Whether serious financial problems are on the horizon
- How well your company stacks up to competitors
- How well the company fares according to industry standards
The more you know about your business, the better its chances of success. Noticing potential problem areas before they blossom into full-grown crises can save a business from ultimate failure. Planning and allowing for growth before it kicks in helps your company expand in the most profitable ways. Your financial statements contain all this information; all you have to do is analyze it.