Financial Reporting and Analysis: A financial health assessment
To take the necessary steps toward growth, business owners need a truthful representation of how well the business is doing. To create this representation, various reports must be prepared and the data within them must be analyzed:
- Cash flow
These reports are formal records that, when interpreted correctly, can give business owners insight into areas of the business that are doing well and maybe built upon, or areas that need improvement.
Business decisions that are made without first being informed by these reports may be regarded as blind decisions, and reports that merely record data without accompanying analyses may be said to be purposeless. This makes these reports indispensable not just to business owners and key decision-makers but to investors and government authorities, as well.
Financial Reporting and Analysis are required by law, primarily for taxation purposes, but they are also vital to shareholders who are entitled to information on the performance of a business they have invested in. Banks and other financial institutions that may be approached by a business for a loan will likewise want to inspect these reports.
Standardized and customized.
Because of the many ways in which Financial Reporting and Analysis may be carried out, over 110 countries around the world have agreed to standardize these methods by using International Financial Reporting Standards or IFRS. Note that Philippine Financial Reporting Standards or PFRS are fully aligned with IFRS.
Also, note that the US has its own Financial Reporting standards known as the Generally Accepted Accounting Principles or GAAP and that any reports prepared for European countries must comply with the General Data Protection Regulation or GDPR. Finally, though China and India use IFRS, they have adjusted them to some extent to suit their country’s needs.
More than a requirement.
Business owners may look upon Financial Reporting and Analysis as just another requirement to meet, but there are several benefits from preparing and analyzing these reports:
- Facilitates the management of a business’ liabilities such as lines of credit or loans
- Simplifies debt management by making it easy to keep tabs on a business’ liquidity
- Recognises trends which enable business process adjustments
For Financial Reports that are prepared more frequently, such as monthly or quarterly reports, updating and checking on these in real-time makes it possible to make quick or agile, yet informed decisions that make sure the business remains liquid. Using Financial Reporting software also helps to progressively enhance business efficiency.