Financial Statement Analysis

The financial statement analysis of any company large or small is the lifeblood of its success. And while large companies can afford staff accountants or even CPAs, the small business owner in America often stays up late at night pouring over statements that bewilder and even intimidate. While a small enterprise owner may pay the ultimate price for failure to make an accurate statement analysis, large corporations bring a tidal wave of human economic loss when deceit and corruption in accounting practices are tolerated. With the meteoric impact on human lives that a recent large corporation's cooked books (a euphemism for showing a financial success story when there is none) brought to the financial markets, the government is looking into the ethical standards of business financial statements of both large and small companies more than ever.

The most important thing a wise and prudent assessment of fiscal records can bring to any business owner is the early detection of trends and problems. Ignoring an oncoming money crisis by not observing bends or sharp curves in the fiscal road can spell eventual disaster. The bones of many entrepreneurs have been left on the seashore of ignorance, fool hardiness or just greed, all because of failure to deal with the realities of their business financial statement. In addition the ability to make a sound financial statement analysis can also be a tremendous advantage when looking at companies stocks and deciding whether they are a prudent investment or not. The following items are only a few of the components of a fiscal business statement.

Cash flow is a quarterly read on the money entering and exiting a company's books. It is not profit, but rather a look at the flow of transactions that took place in that quarters commerce. In a small business with little reserve in place, a negative cash flow can mean the owner pays everyone else first, and if nothing is left over, the owners family has soup for supper. For the small venture owner, slow paying monthly clients or customers are the cause of hardened financial arteries. While the owner must continue to pay a staff and all the expenses of the venture, the knowledge that there will eventually be a profit on the outstanding invoices that are late may often not be of much comfort. An accurate business statement analysis by an owner who is often on the road drumming up new trade will often reveal a cash flow problem early enough to head off a crisis back home.

Expenses are another component of the business financial statement. Perhaps this line has caused more consternation in board rooms and back rooms than any other item. While the expenses such as rising jet fuel costs and higher diesel fuel can often be accepted as inevitable by corporate America, and those expenses can just be passed on to consumers, a business financial analysis that reveals that more and more toilet paper is being used but the staff size remains the same, or that the annual company picnic ran $300 dollars over budget, can send a small business owner into a tailspin. It can be particularly debilitating if the owner cannot raise the price of the product to cover a large number of these expenses that might show up on a quarterly report.

A third component of a financial statement analysis can be a look at the liabilities of a company. While some CEOs might think that their marketing department is the company's largest liability, a liability on a business financial statement is a drain on the company's ability to make more profit that can be measured. An analysis of a company's liabilities will reveal things like interest paid on loans, taxes paid on property, and depreciation of company assets such as vehicles, tools, buildings, computers, etc. The government has devised different depreciation rates for various company assets so that a portion of those assets can be deducted each year as expenses. For the small firm owner, the size of these liabilities may make the difference between profit and loss at the end of the year. For the large corporation, it might mean the difference between boos and cheers at the annual stockholder meeting.

A fourth piece is the balance sheet. If a busy small company owner driving out of state to visit a new client or a CEO rushing out the door to fly to Paris needed a bottom line snapshot of everything that was happening financially at their respective businesses, the balance sheet would give them the real time picture of the company at that moment. It shows whether assets or liabilities are tilting the scales, so to speak. In the first few years of a new venture, it may be an accepted fact that the financial statement analysis may show many more liabilities than assets, therefore, little or no profit. In the white hot heat of reality however, a company will eventually close its doors if the scales continue a negative trend, thus the term balance sheet.

The bottom line is that a careful, well-run company will know the value of precise business financial statement dissection. As a doctor who has trained for years to wield a laser in such a precise manner as not to harm healthy tissue, so will the owners and leaders of business will make themselves masters of their craft: making a handsome profit by careful scrutiny of all the costs and benefits. "Yea, doubtless, and I count all things but loss for the excellency of the knowledge of Christ Jesus, my Lord: for whom I have suffered the loss of all things, and do count them as dung, that I may win Christ." (Philippians 3:8)

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