Gathering financial records is good – but do you know what to do with financial data? Your annual reports and balance sheets won’t help your company with financial health if you don’t know how to analyse them. When you use your financial records accurately, your financial reports will help you make informed decisions. Understanding financial reports will help you when you need to cut extra costs if your operating expenses are increasing, and when you are ready to hire someone. By opting for bookkeeping Melbourne for your company, you can ask your bookkeeper to manage every aspect of your business books. Let’s understand what your financial reports say about your business and how to interpret them.
What is a financial statement?
A financial statement is a type of report that demonstrates the financial status and helps business owners know how their business is doing. These financial statements help investors and lenders to check the financial status and earning potential of a business. Financial statements can cover any time period, although they are most commonly prepared at the end of a month, a quarter, or a year.
Types of financial statement
Balance sheet
The balance sheet plays an important role in a business. It shows your current assets (including money and property), liabilities (debts), and your stakeholders’ equity share. The following formula is used for this document: assets = liabilities + shareholder equity. The primary goal of this document is to show the value of your assets, cash in the bank and current debt.
Profit and loss statement
A profit and loss statement is also known as an income statement. It shows your net income for a particular time period. An income statement includes the cost of goods sold, total revenue, operational expenses, gross profits, and interest costs. The primary goal of a profit and loss statement is to calculate the company’s net profits after expenses and debt are considered.
Cash flow statement
The cash flow statement measures the exact cash coming in and going out of your company. It includes the cash you receive from sales and operations, cash spent or gained for investing, and incoming cash from financing. The cash flow statement aims to know how much cash is coming in and going out of your company.
Why is financial statement analysis important?
You might wonder why financial statement analysis is important. Here are a few reasons to analyse your financial statement for your business:
- Identify trends: Financial statement analysis will allow you to identify trends, such as irregular expenses or patterns in sales growth.
- Make comparisons: You can make comparisons of your business with others in your niche or monitor your achievements against your goals.
- Identify risks: You can identify potential risks before they turn into major problems.
You don’t need to be an expert to analyse your company’s financial statements. You can get small business bookkeeping services for your company as bookkeepers will be responsible for interpreting your financial statements to help you make informed decisions.
How to interpret a balance sheet?
Resulting calculations in a balance sheet must be interpreted as a state of your company’s financial condition at the current moment.
How to interpret an income statement?
Things to check in a profit and loss statement include when you gained the highest profit and when you received the lowest profit. Analysing income statements includes an assessment of gross profit, expenses and the total income before taxes. If you are seeking help from accountants in Melbourne for tax purposes, then they would take benefits from your income statement when preparing taxes.
How to interpret a cash flow statement?
A cash flow statement analysis will help you know about your cash flow. The cash flow statement demonstrates your spending patterns and how much cash is flowing into the company. Your bookkeeper can help you know the cash that flows in and out of the company.
Conclusion
Every business must prepare a financial statement to know the financial health of the business and make informed business decisions. You can receive Reliable Bookkeeping Services for your company if you are familiar with preparing financial statements.