Financial analysis is one of the most important aspects when it comes to a business. It is in fact considered a fundamental principle in any modern business. Financial analysis provides insights that help businesses stay compliant and provides insights to make improvements in every area that allows your business to grow. The right analytical approach can help businesses achieve their financial goals and accelerate business growth.
Essentials for a financial analysis
- The financial statements
Balance sheets and the income statement of a company depict the profit and loss of a business over a period of time. The assets, liabilities, capital, income, expenses, and debt positions are vital to plan the budget and ensure there is profit.
- Working capital statement
This statement is important for preparing the budget, evaluating, and strategic planning. All the expenses and working capital changes are all tracked using the assets, liabilities, and working capital statements of the current year and the previous year.
- Comparative statements
The comparative statements help a business understand and compare its position against other companies in its niche.
- Ratio analysis
This is considered to be one of the most useful tools in debt management, asset management, analyzing the liquidity, market value, profitability, and the performance of various departments.
The 3 different ways of financial analysis and reporting
Financial reporting is considered a standardized method that depicts a company’s finances, revenues, expenses, profits, cash flow, capital, etc. Each aspect is considered vital as it demonstrates the health of a company. Let us explore the 3 different ways of financial analysis and reporting.
Generally accepted accounting principle is a system used in the United States. It includes a set of rules that include details, complexities, and the legalities of business and corporate accounting. As per the US law businesses that release their financial statements to the public and the companies that publicly trade on the stock exchange must follow the GAAP guidelines.
The International Financial Reporting Standards is an accounting standard issued by the International Accounting Standards Board (IASB). The main objective of IFRS is to provide a common accounting language to increase transparency while presenting financial information. It is most commonly used in more than 110 countries. Countries like India and China have customized the IFRS in their own way.
Finally comes the General Data Protection Regulation. This regulation came into effect on May 25, 2018. The GDPR protects the personal information of individuals i.e. those handling sensitive financial data of investors or partners or clients must make sure that the reports are compliant.
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