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FINANCIAL STATEMENTS & REPORTING
Financial Statements and Management Reports are the first steps to keep on top of your business in order to thrive.
See why financial statements and reporting is important, how important it is, how it can help your business, plus a lot more… below.
Why is financial reporting important?
Management Reporting Accelerates Growth
Across sectors, businesses will always need to track their fiscal activities with pinpoint accuracy – and financial reporting is the best way to do so.
Financial reporting tools give businesses the capabilities to make their fiscal activities all the more strategic, streamlined, and forward-thinking. In that sense, financial reporting tools are both functional and progressive.
McKinsey research suggests that leveraging data and accounting software tools to e.g. create more accurate and proficient marketing reports lead to making more informed decisions that boost marketing productivity by 15 – 20%. (Based on the average annual global marketing spend of $1 trillion per year, this can translate to as much as $200 billion.)
Financial Reporting Is Required By Law For Tax Purposes
“The only two certainties in this world are death and taxes”…
You are legally required to pay taxes. The government uses financial reports to ensure that you’re paying your fair share of taxes and can fine you (or put you in jail) for non-compliance or misrepresentation.
Taxation is an important reason for financial statement analysis – basically, you have to do it!
Reduce Risk, Remove or Mitigate Errors
Accurate financial reporting can help business’s catch mistakes earlier before they become serious and costly problems. Through the reconciliation process, errors that have been made can be detected. Other forms of corruption and dishonesty are also likely to show up in the reports.
The best way to detect illegal financial activities is to identify discrepancies in financial statements.
Financial Reports Inform
- External financial statements (income statement, statement of comprehensive income, balance sheet, statement of cash flows, and statement of stockholders’ equity)
- Notes to the financial statements
- Quarterly and annual reports to stockholders
- Financial information posted on a business’s website
- Financial reports to governmental agencies including quarterly and annual reports to the securities and exchange commission (sec)
- Documentation regarding the issuance of common stock and other securities
Accurate Projections Help With Predictive Strategies, Forecasting & Budgeting
- Financial statements can help with analysis, predicting trends and forecasting possible future scenarios and outcomes.
- Fiscal reporting tools dig even deeper to provide comprehensive insights into a range of financial performance and processes.
- Business Intelligence Systems (BIS) Enterprise Resource Planning (ERP) tools take it a step further to report on the business as a whole.
- Historic, real-time and predictive data combined offer a balanced snapshot of metrics that help staff make more accurate projections based on past or emerging trends.
- Projections, based on concrete visual data, make it possible to develop strategies that benefit financial health.
- Potential issues and problems can be identified and nipped in the bud.
- When you have a goal or aspiration, you can analyse historic data and key performance metrics (KPI’s), then work backwards from there to develop solutions or strategies to make this outcome a reality.
- You could streamline processes and take advantage of opportunities that are likely to offer maximum return on investment (ROI).
- Forecasts inform budget planning.
Why traditional financial reporting methods suck
Traditional methods are time-guzzlers
Companies using traditional, manual methods of accounting (e.g. spreadsheets), can spend a lot of time trying to reconcile their books of accounts, verifying journal entries – to find if any accounting errors were made or if anyone messed with any part of the business.
Traditional methods are prone to errors and misrepresentation
The bigger the company grows, the more people involved in collating information, the more chance there is for gremlins to creep in.
Why Outsourced Financial Reporting makes perfect sense
With a financial, real-time dashboard, you can see your company’s financial integrity at a glance, empowering you to make better choices, respond to constant change, and manage your finances and business better.
To get started with finance-based reporting, try our financial analytics software with a free 14-day trial. It’s time to take your business to the next level.
The Key Benefits of using Financial Reporting Tools
Financial analysis and reporting help to answer a host of vital questions on all aspects of your company’s financial activities, giving both internal and external stakeholders an accurate, comprehensive snapshot of the strategic as well as operational metrics needed to make informed decisions and take appropriate action.
The more accurate and consistent the data, the better the analysis, the more accurate the reports.
- Financial reporting and analysis give investors, creditors, and other businesses an idea of the financial integrity and creditworthiness of your company.
- Financial reports offer a wealth of insight that can streamline your business’s fiscal activities.
- Financial reporting tools could serve to benefit your business by giving you a more informed snapshot of your activities; you can use the relevant information to make better business decisions – e.g. should you open a new branch or not.
- Financial reporting analysis can help you see how many months’ payroll your business can give out while remaining financially solvent (assuming that revenue numbers stay the same).
Automated reporting and analytics make life easier.
Financial Reports Are a Source of Information For Stakeholders or Interested Parties
Stakeholders and interested parties can be other companies, investors, shareholders, banks, the government, credit vendors, people who are considering lending money to a company, etc.
If you are considering investing money in a company, you’d want to know how well that company is doing according to a standardized gauge, not some measure that a company has cooked up to make itself look good. You’d also want to have an accurate understanding of how likely you are to be paid back so that the interest you charge can reflect that.
If you own equity in a firm or an investor who owns a major equity position, then you’d insist on full disclosure of all assets, liabilities, use of cash, revenues, and associated company costs.
All parties would want to be able to identify if the company is doing something it shouldn’t.
Remember: the government and/or outside investors don’t care WHY your financial reports are inaccurate – all they’ll do is penalize you for being wrong.
Informed Internal Decision-Making
Financial reports on their own are not the best tools for making all internal business decisions. However, in conjunction with business intelligence tools and other management reports they can facilitate decision making.
By gaining access to centralized, real-time insights, you will be able to make accurate, informed decisions swiftly, thereby avoiding any potential roadblocks while maintaining your financial fluidity at all times.
The online dashboards provide at-a-glance information on the financial health of your company, for both yourself and others.
Avoid running into trouble
Legacy methods (such as one massive spreadsheet that multiple users have access to, or a number of disparate sheets from various sources that do not add up) can spell disaster.
It’s crucial that financial reports are as accurate as possible – otherwise, any management reports (and ensuing decisions) based on them will be flaky at best.
Reap the benefits of financial reporting tools
Use financial dashboards for informed decision making.
Let us help you install a Business Intelligence System of your own, and do the heavy lifting for you.
Improved Internal Vision
It is absolutely crucial that your financial analysis and reporting should be accurate, cohesive, and widely accessible so that critical financial information can be shared throughout your organization.
If your financial insights or data is fragmented, things are likely to fall apart sooner rather than later.
Improved Debt Management
As you know, debt can cripple the progress of any company, regardless of sector. While there may be many different types of financial reporting concerning purpose or software, almost all solutions will help you track your current assets divided by the current liabilities on your balance sheet to help gauge your liquidity and manage your debts accordingly.
Easy Trend Identification
Regardless of what area of financial activity you’re looking to track, this kind of reporting will help you identify trends, both past and present, which will empower you to tackle any potential weaknesses while helping you make improvements that will benefit the overall health of your business.
Raising Capital Managing Funds
The importance of financial reporting is two-fold: for raising funds more accurately and managing your funds more compliantly.
Standardized financial reporting and analysis can assist organizations, regardless of industry, to raise capital both domestically and overseas in a well-managed, fluent way.
Business Intelligence Systems and Software (BIS) and Management Information Systems (MIS) have reporting tools that will give official, concise, consistent, accurate, and compliant information.
Managing your liabilities is a critical part of your company’s ongoing financial health. Business loans, credit lines, credit cards, and credit extended from vendors are all integral liabilities to manage.
If you’re planning to apply for a business expansion loan, financial statements will help establish if you need to reduce existing liabilities before making an official application.
Analytical financial reporting offers an opportunity to identify previously missed opportunities and improve your financial efficiency.
Managing Cash Flow
Big or small, an organization’s cash flow is essential to its ongoing financial health. Working with a mix of detailed metrics and KPIs, it’s possible to drill down into cash flow in relation to anticipated profit and liabilities, keeping your monetary movements secure and fluent in the process.
Communication & Data Access
Unlimited access to essential financial insights and data helps staff respond to challenges swiftly while improving internal communication across the board. If everyone understands emerging trends and can share vital financial data, they will become more efficient and innovative. Compliance issues or errors can be prevented.
Managing Financial Accounting Ratios
Ratios are essential to a business’s fiscal management initiatives.
Financial ratios help break down the colossal sets of financial data to a number. This number is a representation of the business that can easily be understood and worked with.
Critical financial reporting ratios include e.g. Working Capital Ratio, Quick Ratio, Return on Equity (ROE). There are many others that help identify the health of different aspects of your enterprise.
A ratio gives your data form and direction and valuable comparisons can be made over different reporting periods.
Know your numbers, ratios and KPI’s
To ensure the entire operation runs with maximum efficiency, you need to know your numbers.
Visual reporting for instant insights
Graphs, charts and stats, displayed in a visual format, provide a wealth of performance-based information at a glance. These visual reports are essential tools for accurate benchmarking and real-time decision-making.
With practice, this wealth of insight can help preserve your company’s financial health while you develop initiatives to tip the fiscal balance in your favour and boost your bottom line.
Business Intelligence Systems/ Software (BIS) provide a plethora of data reporting and predictive capabilities that can reduce financial risk significantly.
With the right mix of metrics and with dynamic, visual, and interactive KPIs, you will be able to anticipate trends.
- Performance Metrics: You will notice dips or jumps in performance and see positive or negative patterns unfold.
- Work smarter not harder: You would be able to make smarter decisions and investments.
- Take preventive action immediately: Notice potential threats sooner. Put systems or procedures in place to protect your company from inefficiencies, and avoid risk or catastrophe.
- Safety cushion: You will be able to determine if you can remain financially solvent even if some pretty catastrophic things happen to the economy.
- Compliant Audits: Financial analysis and reporting facilitate statutory audits. Auditing firms independently review companies’ financial reports to prevent inaccuracies. (legal requirement)
- Prevent fraud: A data analytics dashboard can highlight fraudulent activity.
NOTE: Research shows that 46% of companies across sectors have fallen victim to financial fraud in the past two years.
It is essential to protect yourself from internal or external cyber-related crimes.
Applying Due Diligence
Deciding whether to purchase a company’s stock is a good idea: If you’re considering investing in a company (as an individual or on behalf of your current organization), financial reporting analysis can provide some relatively real, hard data to help make your decision and give insight into whether a company is potentially under- or overpriced in the stock market.
Assess Profitability And Answer Questions
- How do you tell how much money your company is making after paying all of your expenses and payroll?
- One of the main reasons a company exists is to make profits for itself and its shareholders.
- Is the company sustainable? Will it survive into the future?
- How much cash ‘runway’ do you currently possess? How long will you be able to keep the doors open given your current income and expenditure? Are revenues likely to rise or fall over the next few months compared to your best guess projections?
- Do you have the capital to invest in new lines of business, products, services?
- Are your vendor relationships as healthy as they should be, or as you would like them to be? All business’ vendor or supplier relationships are tightly linked to any company’s ongoing financial health.
Without financial statements, it’s difficult to know one way or the other.
Practice Makes Perfect
What Is Financial Reporting?
Financial reporting refers to standard practices to give stakeholders an accurate record of a company’s finances, including revenues, income and expenses, assets, liabilities, profits, capital, equities, shareholders’ contribution, cash flow and other related information for a specific period of time. Reports provide in-depth insights into an enterprise’s financial position.
Financial reporting follows standard accounting practices to give an accurate record of a company’s finances, with special reference to:
NOTE: No financial or business reporting can offer insight into a company’s character, made up of/by organizational culture, management structure and modus operandi (way of doing things). However, financial reports will give an indication of the fall-out as a result of e.g. mismanagement, corruption, fraud and other shenanigans. Most, if not all, of the damaging problems, originate in the company ethos, perpetuated by management and individuals.
Financial Position Definition
The financial position of a company is measured by the performance it takes in company financial statements – a positive and growing cash flow statement, growing profits in the profit and loss statement, and a balance of assets, liabilities, and owner’s equity in the balance sheet.
The top five essential financial statements of an enterprise
The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company’s financial statements.
- Balance Sheets; The balance sheet provides a snapshot of an entity as of a particular date.
- Income Statements; The income statement reveals the business’ ability to generate profit.
- Cash Flow Statements; The cash flow report shows how much money flowed into and out of your business during a period of time.
- Statement of Changes in Equity; Statements of Owner, Shareholder or Stockholder’s Equity.
- Notes to Financial Statements; These notes disclose the detailed assumptions made by accountants in order to clarify accounting procedures used by a company, as well as to divulge information that occurred during and immediately after the close of the accounting period.
Business Intelligence Software Systems (BIS)
Financial accounting software and Business Intelligence Software and Systems (BIS) as reporting tools offer invaluable information and analytics on elements including investments, credit extensions, all the financial accounting reports as well as any information the head of an organization would need for informed decision making. See more on Business Intelligence Systems link to page: Business Intelligence Systems
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