How Accounting Reports help in decision making for company owners
Every businessman’s life is constantly streamed with making decisions. Envisioning your future by peeping through your smart decisions helps in investment of funds. Accounting reports provide prompt information on the financial aspects of the business and functioning. Accounting & Financial Reports are statements prepared periodically to compile and give a concise representation of the company’s financial information which has been previously entered in the accounting records.
The fundamental Accounting Reports consist of:
Statement of Profit and Loss – A summary of company’s Income and Expenses to generate profit/loss in a specific accounting period.
Statement of Financial Position – A breakdown and classification of company Assets, Liabilities and Equity as at a specific date.
Cash Flow Statement – Representation of Cash Inflows and Outflows to calculate company Net Cash Flow for a given accounting period.
The central objective of these reports is to assist company owners and managers in taking fruitful decisions in various areas. Ultimately, careful and computed decisions will lead to maximize profitability and optimum business performance which are desirable conditions for every enterprise. It is essential to comprehend how different reports could assist in decision making and the peculiar benefits they generate.
With that said, Accounting Reports help company owners to take decisions in the ways listed below:
Statement of Profit and Loss
Profit and Loss gives an indication about the operational performance of the company and generates actual Net Results by calculating whether the firm has made a profit or a loss. It is important for owners to know what the financial condition of the firm is in a specific accounting period and how they have arrived at that result in order to take corrective measures if required. Profit and Loss gives an essential insight to business expenses by providing important information about direct and indirect costs. This allows owners to assess and control expenses by attempting to lower the highest overheads or costs through conservation, negotiation with suppliers or bulk consumption to attain discounts. It also assists in measuring sales revenue and taking measures to boost sales if they seem too low, otherwise working to maintain at the same level.
Balance Sheet gives a thorough breakdown of company financial balances to indicate the financial position of the business. By listing both current and noncurrent assets and liabilities, it helps the business ensure that it can generate sufficient cash to sustain operations. It also briefs the owners on the working capital and liquidity of the business, hence expressing if the business is solvent enough to meet its short-term obligations or if it can grasp onto financial opportunities when they arise. By observing the balance sheet, owners can also check that no cash is tied up in the business by, for example, selling off inventory or certain assets. Furthermore, Balance Sheet also gives an indication of company risk, by detailing its Long-Term Liabilities and Maturity periods, therefore helping owners to arrange for prompt payment. Owners can, as well, find a classification of Accrual and Deferred expense and income within this report, which helps the business keep track of its payments or receipts due and in advance. Overall, the higher the positive net worth or net assets of the company, the better it is for the firm.
Cash Flow Reports
Cashflow demonstrates the flow of cash into and out of the business, hence assisting owners to control and overlook the cash available in the business. It is important for businesses to always maintain a positive cash balance in order to avoid overdrafts, maintain liquidity, pay off short-term debts and not miss onto favorable opportunities due to cash shortages. Owners must increase liquidity by encouraging cash inflow and restraining cash outflow which can be done through delaying payments to suppliers and creating incentives for debtors to pay on time. A healthy cash flow will encourage more sleek, competent and robust operation of the business.
The financial statements act as a ground for measuring business progress over several years or comparing business performance to competitors. This could be done by calculating financial ratios using the values recorded in the financial statements. Most utilized ratios include:
Profitability Ratios – Gross Profit Margin & Net Profit Margin.
Liquidity Ratios – Current Ratio & Quick Ratio.
Investment Ratios – Earnings per Share & Dividends Yield.
Analyzing these ratios will depict the areas where the business has a strong and a poor performance, hence allowing owners to take decisions that would stabilize the ratios and increase business efficiency.
Promote further investment
Systematically publishing financial reports enables company shareholders and owners to view the business financial data and assess its performance. This may increase owners’ confidence and encourage further investment which will work towards business expansion.
Nevertheless, it will also help the business in claiming a bank loan if needed by presenting the financial position of the business and its retained earnings to the bank through the financial statements.
Other Customized Reports as per the requirements of management includes
- Cost – Benefit analysis.
- Division or department wise sales analysis.
- Employee wise performance appraisal.
- Sales & cost comparison with prior periods.
CDA Accounting and Bookkeeping Services LLC
CDA is an accounting organization charged with cultivated professionals and sophisticated means of operations. CDA provides reliable and valuable outsourced accounting services to all its clients and subordinates which includes the preparation of high-quality accounting reports that agree with the IFRS standards. Our charter will be cost effective for your firm as well as guarantee prompt and accurate publication of your financial data.
CDA Accounting & Bookkeeping Services LLC also handles Outsourced CFO Services , Auditing Services, Accounting & Bookkeeping Services, Accounting Software services, Due Diligence Services, and Tax Filing & VAT Consultancy services on time according to the convenience of our good clients.
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