Reading and interpreting financial statements is not always easy. Weaving numbers and intimidating the account can be confusing and eye pain – especially if the numbers are not your thing. When managing business or playing a vital role in the account office where the numbers are inevitable, the financial statements are something that is constantly dealt with. Therefore, you should be in the episode about what is happening with the numbers. The good news is that you do not have to be a mathematics to get it. In this article, we will explain how to read financial statements such as the financial manager, even if the numbers are not satisfied.
What are the financial statements?
The financial statements are official records that summarize the financial performance of your company or your organization. These records provide a clear picture of financial health, which often indicates the direction of the company – whether it is correct or wrong. It includes income data, cash flows and public budgets. These documents can be simple, easy to explain or complicated and with a mind. If you hate numbers, your office days will be long and boring.
How to read financial statements like a professional
The complex numbers and account can be confusing, especially if you are not numbers. However, there are just few ways to make all this difficult work easy like ABC. Here are ways to read your financial data such as the financial manager.
Income
The financial statement tells you whether you have made profit or need to keep up with it. Reports can be monthly or on a quarterly or annual basis.
Revenue (upper line)
This is the total amount that your business earns from selling products or services. Try to find out if your revenues rise over time. If so, your work is growing, but do not celebrate yet – this is only the upper line.
The cost of sold goods (COGS)
This is what costs you to make it or buy what you sell. If you sell hats, Cogs includes what you paid for hats and charging and possibly storing warehouses. Ensure that this value is not incredibly high, as it will affect your profits.
gross profit
Now, put the revenue promoting to achieve the total profit. This tells you the amount you made before paying other expenses, including rent, salaries, marketing, etc. The total profit may mean that your costs rise faster than your sales.
Opex expenses (Opex)
These are all other costs involved in your business management, including rent or facilities, employee salaries, marketing costs, insurance, and office supplies. If these expenses rise very quickly or there are areas that you seem to overpower, then cut them lean but not to bare bones.
Operation
This is the remaining amount after Opex of the total profit. Some income data are called EBIT (profits before benefits and taxes). Positive operation income means that your business earns money. If this is negative, this may mean that something with your costs, pricing or efficiency.
Income
This is the next money or exit that is not part of your standard commercial operations. It can include selling equipment or gaining interest from the savings account.
Taxes and interest
High interest can indicate high external debts. Taxes are inevitable, but appropriate Tax planning It can be a long way.
Net income (Saying Construction)
This is the remaining amount after all; It is your actual gain and what matters. If it is constantly positive, your business earns money; The opposite is true.
Remember to compare month to month or annual because trends are more important than one time. Moreover, see your halls. Low profits with high sales may mean enlarged costs. If possible, separate the fixed and changing expenses to understand the changes with sales sizes. Do not look at the groups, but understand what drives these numbers.
Public budgets
The public budget provides a financial snapshot for your work at a specific time. Follows a simple equation: assets = obligations + fairness. In other words, everything must be paid with the company (assets) either by borrowing money (obligations) or by investing the owner (stock).
Reading a public budget, such as the financial manager, means looking at beyond groups only. Compare the current year numbers with the previous numbers to discover directions. Then ask yourself, does the inventory depend a lot on the borrowed money? good Financial manager who can be part -time Or full time in the company monitors the balance between current assets and opponents, ensuring that commercial activity can escape declines in sales or unexpected expenses. Also make sure to verify whether long -term obligations are managed based on the company’s profits. The goal is to ensure the company remains in good, balanced and flexible healthy to grow.
Cash flow data
The statement of the cash flow shows how the money moves inside and outside your work during a specific period, usually a month, a quarter or a year. This statement is not always concerned with the rules of account, dues, or what it condemns. Instead, he only cares about what was hit or left your bank account.
Focus on the big picture when reading the statement of the cash flow of your work. Your goal is not to save every number, but to understand your work and your ability to generate money. Focus on trends and patterns – Does your cash flow improvement over time? Are there any major transformations in your flows and external flows? If the net cash flow is positive, especially from operating activities, this is a good sign. This means that your work earns money from its daily operations.
If possible, focus on what matters while ignoring small things. Large ticket elements such as the “Operating Activities” section should be the place where your attention is walking. Network (profit) should be your starting point. From there, check whether it is positive or negative, then a quick wiping to make major adjustments such as consumption or changes in working capital. Huge fluctuations in stocks and accounts due to a road crisis on the road can indicate.
Also do not forget to check the red flags. Passive monetary flow, high investment surplus, or cash flow financing, all possible financial cold that may require rapid treatment. Also, as the financial manager, you will need to focus on directions and not just one -time events. Focus on cash flow. Is it growing or shrinking? Compare this information to your budget or expectations to see if you are on the right track or need adjustments.
Procurement rights statement
This financial statement tracks movements in the stock division in your budget. Simply put, stocks are the value of the company’s ownership, and this statement indicates the amount of shareholders ’increased rights or decreased over time. Here is how to read property rights data for shareholders such as the financial manager.
Check the detained profits
This is the part of the profits that the company kept and that was not paid as profits. If your company is profitable and re -invests in itself, this value will grow, and vice versa.
Focus on the general trend of fairness
Be careful with how the total shares change. If it is constantly increasing, the company grows in the value. The sudden decrease can indicate a financial problem or big batches (such as profits or participating in repurchase).
Consider the company’s profit distribution strategy
If the profits are high, it may indicate a stable and profitable work. However, this still means that the company does not invest it enough in its growth. On the other hand, if the stock profits are low or not present, the company may give priority to re -investing to pay the shareholders.
conclusion
While reading the financial statements can be very difficult – especially if the numbers do not appeal to you – it can still be understood. The business financing world can be largely complicated, but mastery of useful strategies can help you read your financial data like the financial manager.
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