We tried to understand the importance of accounting & bookkeeping. And how startup accounting firm can play an important role by providing accounting services for small business to manage their business effectively. You may be thinking! How only accounting & bookkeeping can help in running a business effectively. Yes, it’s not only the important part it is one of the important aspects.
One need to understand many aspects of the Financial parts involved in every business which demands the analysing skills of Financial Statements. Ok, what is Financial Statement Analysis? The comprehensive study and perception of the provided data in “Financial Statements.”
The main objectives of Financial Statements at a glance:
- Assessment of Past Performance
- Assessment of Current Position
- Prediction of Profitability and Growth Prospects
- Prediction of Bankruptcy and Failure
- Assessment of the Operational Efficiency
Assessment of Past Performance: The most important part of any business is to understand what happened in last financial year. But, how? The various financial data, like ‘Sales’, ‘Cost of Goods Sold’, ‘Operating Expense’, ‘Net Income’, ‘Cashflow’, etc. will help to understand what was the whole cinema at all. This trend can lead investors to predict the future of an organisation.
Assessment of Current Position: Now, it’s not just enough if you look at your previous performance. By accomplishment of ‘Financial Statement Analysis’, the ongoing position of an organisation in regards to assets, liabilities, etc. can comprehend.
Prediction of Profitability and Growth Prospects: Understanding the performance and status of past and the current position of an organisation fine. But, what about future growth? By doing ‘Financial Statement Analysis’, the assessment and forecasting of the growth opportunities of an organisation are possible. Further, it helps the investors to compare and decide investment out of many options available to them.
Prediction of Bankruptcy and Failure: Every organisation should have some set of standards to operate the business. The ‘Financial Statement Analysis’ can determine the ‘Efficient Operations’ of organisation’s management. To achieve ‘Operational Efficiency’, set performance standards with certain parameters and compare that with the actual performance of the organisation. The deviation between the ‘Set of Performance Standards’ and the ‘Actual Performance’ will indicate the ‘Management Efficiency’.
The ignorance of regular ‘Accounting and Bookkeeping’ will lead to the absence of ‘Financial Statements’. Without ‘Financial Statements’ their analysis is impossible, without analysing ‘Financial Statements’ the reachability of expectations on business success will become tough.