Financial Statements

If you want a clear understand of how your business is doing financially, and you want to be able to predict and plan for the future, a fairly thorough understanding of your financial statements is essential. A sound understanding of financial statements will help you:

Limitations of financial statements. Keep in mind that your financial statements are only a starting point for analysis. Individual numbers aren't good or bad in themselves you may have to dig for the reason behind any numbers that seem out of whack. For instance, if your statements shows that your accounts receivable have trended significantly downward over the last few years, it could mean that you're collecting the accounts more aggressively (which is good), or it could mean that you're writing off accounts as uncollectible too soon (which is bad). The key is to use your statements to spot trends and anomalies, and then follow these up with further investigation.