HomeHome SearchSearch MenuMenu Our productsOur products

Three reasons why you need to analyse your financial statements

by , 01 June 2016
Three reasons why you need to analyse your financial statementsYou probably have an accountant who prepares your financial statements diligently every month.

And what usually happens... you file them away, without so much as a second glance.


I know you don't worry about preparing your financial statements because you have a competent team who you know and trust to do it.
 
But you really should be analysing your financial statements. Here's why…
 
***** Advertisement *****
 
At Last! Your key to quick, efficient, 100% correct and legally compliant financial statements:
  • Why you need financial statements;
  • Your legal accounting reporting obligations with IFRS, The Income Tax Act and The Companies Act of 2008;
  • The trial balance – the first step to creating your financial statements;
  • How to prepare your income statement and balance sheet;
  • Cross-checking with other reports, ledger, fixed assets register, inventory list etc.; and
  • Red flags to look out for.
Here's how to eliminate accounting errors and draw up perfect financial statements now
 
***
 
Two pieces of financial information you must analyse
 
When you analyse your financial statements there are two pieces of information you should look at:

1.       Statement of comprehensive income (Income statement); and 
2.       Statement of financial position (Balance sheet).
 
Here's why…
 

Analysing your financial statements can save your business

Here's three reasons why you should analyse your financial statements regularly:
  1. You can spot trends in your business. And see problems that exist or may soon exist so you can plan for them. If you plan correctly, you won't have a strain on your cash flow.
  2. It allows you to allocate resources and evaluate potential projects for maximum return on investment. So you'll spend more on projects that make more money for your company and scale back, on the ones that don't.
  3. Not analysing financial statements and information can lead to untold problems. For example, you could have a situation where you have an overdrawn bank account, can't pay for salaries or even bankruptcy.
If you don't monitor your cash flow, you might land up in a situation where you don't have enough money to make your payments. Let's look at what happened to Mike when he didn't.
 
***** Advertisement *****
 
Simple Excel solutions to do your complex calculations in minutes!

Want to fix Excel problems in the shortest amount of time?
Don't have time to devote to Excel?

Discover the Excel functions and formulas you need right now to reduce stressful and tiring work within minutes of data processing.

The Practical Guide to Excel gives you everything you need to work quickly, efficiently and without stress.
  • Basic tips and tricks to use Excel efficiently
  • How to Autoformat
  • Data filtering to make complex filtering tasks simple
  • How to format cells, columns and rows
  • Formatting numbers and dates
  • Entering formulas into spreadsheets
  • Understanding and implementing Macro commands
  • Database design in Excel
  • All you need to know about Pivot Tables
  • How to print Excel spreadsheets properly
Get 14 Excel solutions on one easy to use CD!
 
***
 

A good example of why you should analyse your financial statements

 
Let's look at an example.
 
After experiencing a really good month of sales, Mike, a business owner of a small chocolate factory, expects his bank account to show a large positive bank balance. When he checks, he sees that his bank account is overdrawn (in negative). Mike can't pay for the raw material cocoa used in production and declares insolvency.
 
His colleague analyses his position and realises that all his cash was actually invested in his large chocolate inventory – he liked to keep a large amount of chocolate on hand in case his clients ordered more. Mike could've avoided it if he had had a better understanding of his financial performance, by analysing his Income Statement and Balance Sheet.
 
P.S. Don't make the same mistake as Mike. Find out exactly how to analyse your financial statements at our interactive Financial Statements workshop. To be one of the first to find out when bookings open, send me an email at seminars@fsp.co.za


Related articles




Related articles



Related Products



Comments
0 comments


Recommended for You 

  Quick Tax Solutions for Busy Taxpayers – 35 tax answers at a glance



Here are all the most interesting, thought-provoking and common tax questions
asked by our subscribers over the last tax year – everything from A to Z!

To download Quick Tax Solutions for Busy Taxpayers – 35 tax answers at a glance click here now >>>
  Employees always sick? How to stop it today



Make sure you develop a leave policy to regulate sick leave in your company.

BONUS! You'll find an example of the leave policy and procedure in this report.

To download Employees always sick? How to stop it today click here now >>>
  Absenteeism: Little known ways to reduce absenteeism



This FREE e-report will tell you how you can reduce absenteeism in your workplace while avoiding the CCMA and without infringing your employees' labour rights.

To download Absenteeism: Little known ways to reduce absenteeism click here now >>>
  7 Health & safety strategies to save you thousands



Don't let a health and safety incident cost you one more cent. Implement these seven
strategies in your company today.

To download 7 Health & safety strategies to save you thousands click here now >>>