- Advertisement -
Wednesday, July 8, 2020
Home Money How to perform a financial statement analysis?

How to perform a financial statement analysis?

- Advertisement -

Every business company should consider preparing its financial reports with accuracy for knowing the profits and losses in detail. A financial statement allows businesses to examine their performance levels after examining the past and current data. Another thing is that it gives ways to understand more about assets, liabilities, expenditure, reserves, income, cash flow, and other things. Businesses can even evaluate the strengths and weaknesses of their economic conditions after preparing a financial statement that can help make a better decision. The statement has three main areas the structure, economic characteristics, and strategies.

Businesses should consider the following things while performing a financial analysis.

RELATED POST: MAKE BETTER BUSINESS DECISIONS – PERFORM A DETAILED FINANCIAL FORECAST (INFOGRAPHIC)



ALSO READ: HOW TO BUY A STARTUP?

1. Ratios

Ratios

Ratio is the most important thing to consider when conducting a financial analysis. There are different types of ratios followed in the analysis that can help focus more on the objectives while preparing a financial statement of a company. Some of them include efficiency ratios, liquidity ratios, solvency ratios, and profitability ratios. The common efficiency ratios include inventory turnover, asset turnover, accounts payable turnover, and accounts receivable turnover. A liquidity ratio is a ratio that allows a company to determine whether it is able to pay short-term debts or not.

ALSO READ: GREAT SMALL SCALE MANUFACTURING BUSINESS IDEAS FOR YOU

Some of the common liquidity ratios include the current ratio, quick ratio, and cash ratio. A solvency ratio enables a business to determine its ability to pay long-term obligations. The common solvency ratios include debt to equity and debt to assets. A profitable ratio is the measurement of profits that allows a company to earn a high income. The most used profitable ratios are return on assets and return on equity.

2. Horizontal analysis

A horizontal analysis involves comparing the current year performance of a business with the performance of previous years. It is usually done with the income statements and balance sheets that can help come to a conclusion. In addition, it allows businesses to get more ideas about the changes in detail for making a decision accordingly.

ALSO READ: HOW TO BECOME A SUCCESSFUL YOUNG ENTREPRENEUR

3. Vertical analysis

Vertical analysis is very simple than horizontal analysis because it allows businesses to reveal the outcomes after studying the income statement and balance sheet. It plays a significant role in financial statement preparation to achieve optimal results. An income statement allows a business to have a look at the margins, expenses and cost of goods sold. The details provided by the balance sheet let businesses to notify the changes after evaluating three important categories such as assets, equities, and liabilities.

 

 

 

 

- Advertisement -

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -

Stay Connected

16,985FansLike
1,850FollowersFollow
2,458FollowersFollow

Must Read

Best Marketing Strategies for the Home-Based Business

Seven Key strategies to follow to market your Home-based business effectively If you are planning to launch a new business from your home, then it...
- Advertisement -

A Guide To Business Turnover And How To Calculate It

Every entrepreneur wants to know where his/her business stands at a particular point of time. In this case, it will be wise to use...

What is Entrepreneurial Marketing?

What is Entrepreneurial Marketing? Perhaps, you may be interested to know what it is all about. It is considered to be more of a...

Boosting Your Company’s Green Potential

Making your business eco-friendly has a number of benefits – from helping Mother Earth to showing the world what an amazing and considerate person...

All Time Random Articles

Google Self-Driving Car Unit Accuses Uber of Using Stolen Technology

WASHINGTON (CNNMoney) -- Another day, another black eye for Uber. The ride-sharing giant, reeling from revelations of troubling workplace culture, is the subject of a...

List of Top 10 Online Shopping Websites in India

Indian citizens have become more net savvy and are using computers, smartphones and tablets to seek information and to shop favorite products and services. As...

5 Free Marketing Tools for Small Business You Need Know

Finding a marketing tool for Small Businesses that makes my life easier. I Feel good when I find FREE marketing tools. I'm Not a Business...

Boosting Your Company’s Green Potential

Making your business eco-friendly has a number of benefits – from helping Mother Earth to showing the world what an amazing and considerate person...

Benefits of Agile Training For Businesses

Company management and employees are always hustling to achieve target goals daily. And with lots of deliverables to do and deadlines to hit, sometimes,...
- Advertisement -
Select Language »