How Do Financial Statements Help Your Decision Making?

How Do Financial Statements Help Your Decision Making?

Even if you are a passionate and committed business owner, spending hours delving into the detail of your company’s financial performance may sound terribly unappealing.  Yet businesses are made and broken on the decisions that are made. Therefore, how to use the information obtained from your financial statements to make better business decisions begins with understanding of the main three financial reports used. The three financial reports that are usually used to make a business decision are the Balance Sheet, Income Statement, and Cash Flow statement. Your financial reports must be accurate and GAAP (Generally Accepted Accounting Principles) compliant. It would be very difficult to make good decisions based on inaccurate information. The Balance Sheet: The balance sheet is a summary of the financial balances i.e. assets, liabilities, and equity of a company at any GIVEN time. It depicts a picture of the strength of the company and days of working capital i.e. how easily can a company handle changes in revenue while staying afloat. Balance sheets can also identify other trends, such as how the receivables cycle works, how net profits are being used, and how often equipment is replaced. The Income Statement: The Income Statement, also known as Profit and Loss Statement (P&L), reflects the company’s revenue and expenses DURING a particular period of time.  The purpose of an income statement is to show how the company has performed, by listing sales and expenses, and the resulting profit or loss. The Cash Flow Statement: The Cash Flow Statement simply states the inflows and outflows of cash during a finite period of time. These movements of money will account for the...