Through this statement, it becomes easy for an organization to make comparison between past profit and the current profit. It is also used in budget planning for the next year.
Benefits of financial statements analysis
Keep Current on Debts
The Current Ratio analysis is the total current assets divided by the current liabilities on balance sheet. This can help to determine whether have adequate liquidity to meet upcoming debts.
Determine Profit Margins
Companies can determine their profit margins with the help of financial statement analysis. Companies can determine their cost of production. Gross Margin Percentage is used to determine this, which is total revenue less cost of sales divided by total revenue. Use this to help reduce the costs of production and help to increase the efficient utilization of resources. That ultimately contributes in growth of profit of a company.
Track Inventory
Inventory management is an important function of any organization. With the help of financial analysis any organization can better manage the inventory. Turn over ratio is used to determine whether it meets projected sales figures or not.
Determine Debt to Equity
A Debt-to-Equity Ratio determines how much total liabilities are in relation to equity in the business on a balance sheet.
See Improvement over Time
Companies can compare their financial statement numbers over time to spot trends and changes that affect business. With the help of this companies can determine the risk factors and can make plans to reduce these risk factors.
Helps in Bench Marking
Benchmarking is the process of determining who is the very best, and help to sets the standards. With the help of financial statement companies can set their bench mark.
The Financial Analysis performs in-depth analysis of the company’s financial and operating results independently and prepares management reports.
The financial statements are ultimately the "scorecard" for the company's performance .and it also helps to determine the strength of an organization.
