Reading a financial report provides you information on the financial performance and condition of your business.
Just the thought of preparing a financial report is a challenging job let alone reading it. If you do not have any sound knowledge of bookkeeping, the numbers you see on the financial report will surely be foreign to you.
If you want to grow your business, you need to make sure that it is ready for the transformation. What better way to determine the financial health of your business than to read the financial report. Here are five tips to consider when reading a business financial report.
Decide what you are going to read
When you are reading a financial report, the first thing you want to know is how your business is doing. As the report contains lots of information, it can be very difficult to identify the section you should pay attention to. The report shows you the trend charts, financial statements, historical summaries and much more.
If you do not have the luxury of time to read the entire section, look for the highlights section. This section will give you a summary of the main developments of your business. You will also know the steps to take to improve your business.
Gain a basic understanding of accounting
While it is the job of your bookkeeper and accountant to prepare your financial report, this does not mean that you are no longer required to read the financial statements. You will still need to make a conscious effort to interpret these reports because they can play a big role in helping you decide of the direction your business will be taking.
Know your profit performance
There are many ways your business earns profit such as making sales and keeping expenses less than your sales revenue. You will be able to analyze profit performance by checking your sales revenue. Is it higher than the previous years? Do you know the gross margin ratio of your business? You will also have to keep in mind that judging profit performance should be based on general economic conditions.
Check your cash flow
Cash flow is important to business owners. Even if you are making a profit, this does not necessarily translate to having a steady cash flow. There are various ways a business can obtain cash, such as selling off some assets, borrowing money or getting shareowners to put more money in the company.