Looking at Financial Statements with Brand New Eyes
Financial statements are like school report cards in business. It contains a treasure trove of information about your company. Basically, the financial statement reflects the account receivables, assets, profits, income, capital, operational expenses, taxes and liabilities. They are valuable statements to understand the financial status and company’s positioning in the market. Financial statements can also reflect the business model, and corporate structure and its identity. That’s why it’s one of the most important documents for any type of business.
For accountants, reading financial statements is like reading the newspapers, but for beginners, it is never a piece of cake. But like most of us, not all entrepreneurs especially startups, are adept at numbers. Therefore, it may be a struggle for startups to prepare and analyze financial statements. Making financial statements is certainly not a walk in the park.
Here, we will give you a fresh take on how to read financial statements. To better comprehend the overall company’s situation, let’s look at financial statements through a bird’s, fish’s and bug’s eye view.
1. Financial Statements through a Bird’s eye view
Looking at the big picture, you must review your sales, operating income, and net income. When your company sales has increased yet your operating income has decreased, you should carefully check your company expenses. So that you can avoid losses in your company, you must lessen your company expenses, in order to increase your profits.
When net income has decreased, check the operational expenses, interests, loans which may have caused this.
A detailed examination of the operating income, ordinary income, and net income, and also sales is the first step to grasp the financial status of the company.
2.Financial Statements through a Fish’s eye view
Second, let’s go through financial statements through a fish’s eyes.
By looking at the big ocean, you can catch the market flow and trends, consumer feedback, and socio- political situation. By being attuned to the needs of the market, you will make better and informed decisions for the company.
To compare your performance in the market, you need to monitor economic indicators daily by examining US Census Bureau, Consumer Price Index, and US Stock Market- Dow Jones, NASDAQ Composite, S&P 500 index. Learn to analyze the data affecting your company and industry as a whole. Review the information narrowed down to your specific sector. You should know the position and strategy of competitors especially big companies in your industry in terms of their sales, stocks and market performance. Compare how your company weigh against competitors in the market. You must also arm yourself with relevant information such as the current pricing of materials in your sector.
With an informed analysis of the market, you will be able to craft better strategies, and also sound short- term and medium- term business plans. As startups, you must be able to swim with the market trends, or you’ll eventually sink. With fish eyes, you’ll be able to swim with how the market ebb and flows like the ocean tide, metaphorically speaking.
3.Financial statements through a Bug’s eye view
Check whether the accounts receivable, was duly paid on time. If not, the effect will have a negative impact on your cash flow. When there’s delay on accounts receivable payments, you have to promptly dispose of the dead stock, to boost cash flow. In case, the dead stock will be sold at a discounted price, your company will have lesser profit, or worst, a loss to your finances.
Reviewing your financial through bug’s eyes, you can check the small details on your finances, and avoid or minimize losses.
When you read financial statements through extraordinary eyes, you can see the big picture, adapt to the market changes and trend, and adjust your focus to the important details. As a by-end result, the financial performance of your company will greatly improved. Business is a number’s game, after all.