5 Ways to Analyze Financial Statements to Stay Smooth

A financial report is a report issued by a company to find out the course of finance. Financial reports will usually be made within a certain period such as once a month or annually. After knowing how to make financial reports, the next thing you should know is how to analyze financial statements.

Analyze this financial report to find out whether the business finances you manage are healthy and stable and have not experienced a negative decline. 

For that you need to know how to analyze financial statements to be more effective. Below are 5 points of good financial statement analysis.

5 Ways to Analyze Financial Statements for Smooth Finance

Quoted from website Association For Financial Professionals There are 5 ways to analyze financial statements, financial analysis to make it easier to make decisions.

1. Identify the characteristics of the industrial economy

The first thing in analyzing financial statements is that you determine the value characteristics of the industry first, you must create an industrial economic chain such as production, distribution, and service activities of the company.

At this stage usually also use the analysis of economic attributes.

2. Identify the strategy used by the company

The next way of analyzing financial statements is that you have to look at the nature of the products or services offered by the business you are running. You also have to determine the uniqueness, the level of profit margin you want to achieve, brand loyalty, to the desired discount. 

It aims to form a strategy that will be used by the company. In addition, don't forget to identify other factors such as the industry that supplies the business needs and industry diversification.

3. Assess the quality of the company's financial statements

Analyzing financial statements means that you review the financial statements of a business or company that have been designed, when reviewing you must generalize them with the relevant trade accounting standards.

Do not forget to evaluate the trial balance, to assess whether the trial balance is complete. Then, when analyzing the income statement, you should look at whether earnings quality is a complete representation of the company's economic performance.

By evaluating all components of the financial statements as well as to understand the impact of the company's liquidity position from operating activity funds, investing and financing activities in a certain period.

In this section you should know about the coming and going of company funds, and how the company's overall liquidity is.

4. Analyze profitability and financial risk

The next and no less important step is to conduct an evaluation related to liquidity, asset management, profitability, and financial risk.

You also need to analyze how profitable the business operations are on assets, and how the company can pay for those assets. The latter is how profitable the company is from the perspective of equity shareholders.

5. Prepare financial report projections

Things you can't escape from financial statement analysis is to make report projections finances for the next period. This stage is very important to do so that you can make assumptions about the company going forward because it will have an impact on cash flow and funding. So, you can find out about finances that will later be used or obtained.

Types of Financial Analysis

To perform financial statement analysis can also be done with four types of analysis, namely quoting from: E-Finance Management there is ratio analysis, DuPont analysis which uses the Return on Equity formula to break down ratios such as net profit margin, financial benefits, and asset turnover.

Then there is a horizontal analysis to compare the financials of one period with the period of previous years, and the last is a vertical analysis that calculates the income statement as a form of income or sales.

The way of analyzing the financial statements of each company may be different from each other, you can also choose to use for mobile devices to report the accounting, if not, you still don't understand the analysis of your business financial statements.