3 Critical Indicators you should search for in your Financial Statement Analysis

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Are your financial reports giving you the information you need?

In order for your financial information to be as valuable as possible, it is important to make proper use of the information they generate.  Simply producing reports on a monthly basis is not enough. The tools you use to analyze and monitor these reports can give you a read on financial “vital signs”, gauge your progress towards financial goals and identify problems within your business.

Financial Statements determine your growth potential

1. Risk – Do you have sufficient assets to cover your liabilities?

The ability to pay off your liabilities is a measure of how much risk your business carries. Lower risk means your have the ability to pay and while risk is not necessarily bad it is important to know what balance to have. Borrowing money is a traditional way to fund growth but if that growth doesn’t work as planned your business could collapse

2. Profitability – Are you making sufficient profit?

Profit is the key to long-term survival of your business. You can survive without it for a while, but consistently operating at a loss will eventually collapse your business.

3. Liquidity – Do you have enough cash available to cover your expenses and support your growth?

Liquidity is the key to short term survival. Surviving without profit relies on accessible liquid cash and when that runs out your business will come to a grinding halt.

Review your reports as often as possible

Keeping track of your financial reports will help you detect the impact of activities on your strategic objective.  While many companies might focus on gross sales, a more accurate measurement is profits, as your business needs profits to survive.  Don’t avoid reports; make them a part of your management strategy.

 

For more insight in to your business, you should try our Business Strength Test

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