As explained in the article “Understanding Financial Statements In 5 Easy Steps”, financial ratios are main tools to analyse the financial strength of a firm. They quantify many aspects of a business and are an integral part of the financial statement analysis.
Are you passionate about your own business and feel that it can grow rapidly?
You too can be a success, but there are important things to consider before becoming an entrepreneur.
Let’s discuss some important success factors.
For starters, take the business plan. A plan helps you get to market faster by having everything clearly laid out, on paper, focused. It puts your goals, strategies and actions in black & white, there for you to tweak, refine and perfect. An important part of the business plan is ‘financials’.
All depends on it being solvent and able to pay its bills in the short, medium and long term. The firm must always have sufficient cash to pay for its operating expenses. Thus the policy of the firm for minimum cash is to have enough cash in any given month to pay for next month expenses. (more…)
We’ve already started the discussion about financial ratios in the article What Are Financial Ratios? and will now go further.
Financial ratios are calculated to analyse management effectiveness in employing capital, solvency and profitability. The information contained in the Income Statement and Balance Sheet is essential to obtain financial ratios.
Of course, it is crucial to know the nitty-gritty of these financial statements. Then you don’t have to read them from A to Z, rather look through several figures and this is it. It is not only “sales” value. And it is not only for one period.
1. Why is it important to understand financial statements?
Financial statements provide information about the economic performance of a company. The purpose is to show how investors’ money has been used in trying to obtain profits and growth, in both, the short and long term. Financial statements should be understandable, relevant, reliable and comparable. Reported assets, liabilities, revenues, expenses, income and equity are directly related to an organization’s economic success.
What would support you to have a viable business?
For an owner-managed business it is vital to monitor cash flow and identify as early as possible if the the cash flow is going too tight. Knowing the next month’s cash position can be a make or break factor. (more…)
Have your say: Profitability or Liquidity?
Most business owners see growth as the solution to a cash-flow problem. That’s why they often achieve their goal of growing the business only to find they have increased their cash-flow problems in the process. Plan for growth and the related cash outflow in advance, so not to be badly surprised. (more…)
Entrepreneurs and managers have to make sure that scarce resources are employed to best accomplish business goals.
Entrepreneurs and managers also carry out decision analysis for new investments aimed to secure the objectives of:
(i) Net Present Value (NPV) and Internal Rate of Return (IRR);
(ii) Payback Period;
(iii) Break-even Point;
What is Investment Decision Analysis?
Is the evaluation process to determine whether an investment in a project or a company is worthy to be implemented. (more…)
We are happy to launch our long awaited blog. We will bring many ideas, concepts, best practice in business accounting and strategic financial management that, we are confident, will be of benefit to our friendly readers.