Before the finance report analysis, it is important to first understand why it comes together. The management of any enterprise needs information flow in order to make informed and reasonable decisions affecting the success or failure of its activities. Investors need accountability for analyzing investment potential. Banks require financial statements in order to make a decision on granting loans, and many companies need reporting to determine the risk associated with doing business with their customers and suppliers.
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There are many ways to prepare a financial report. This may be a traditional printed report, a brief overview of the activities, supplementing the financial statements, only financial statements with reference to the electronic version of the annual report. Some companies include social sections in the annual report, others issue a separate report. Different companies are suited to different formats, and no matter what format to choose, the main thing is to use the main opportunity offered by the annual report: to reflect the company’s investment thesis attractive to the financial community.
Usually, the accounting department, the accountant, or the owner of the enterprise systematically takes into account, sorts, and summarizes thousands of documents (cash registers, accounts, and supporting documents), which are commercial transactions. These transactions include the sale of goods, the distribution of payroll, the purchase of inventories, and much more. After that, these facts are brought together, classified, and summarized in the financial statements of the company so that in the future it is possible to prepare a financial report.
The financial report is prepared, at the discretion of the enterprise, quarterly, twice a year, or once a year. The date of the financial report is quite important. Most of them are usually compiled for the year (fiscal year). Reports submitted that are not compiled at the end of a fiscal year are known as interim reports.
The finance report is prepared in such a way that management can make informed and reasonable decisions affecting the success or failure of its operations. External aspects for the enterprise – creditors, banks, investors, and shareholders – have different objectives in relation to the consideration of the company’s statements.
The level of information available in relation to the enterprise varies according to the requirements of the enterprise being studied. For example, a banker considering a request for a substantial loan will usually require not only a detailed report on the state of the enterprise and revenues over several years, but also the structure of inventories, obsolescence schedules for receivables, accounts payable, sales plans, and estimated indicators profitability. When a banker, loan manager, or investor obtains the required financial information, analysis begins. Most analysts use the analysis of relative indicators as the main tool.
Indicators are a means of displaying the relationship between items of finance report. Without exaggeration, we can say that there are dozens of indicators that can be determined for any enterprise. Typically, indicators are used in two ways: for internal analysis of balance sheet items and/or for a comparative analysis of a company’s performance over various periods of time and in comparison with other firms in the same industry.
