Using financial reports to increase your profitability
As a key part of the service Wyndelts & Co. provides, we can assist in or supervise the preparation of your financial statements. More importantly, we can help you use these statements, as well as other reports, to better manage your business and increase your profitability. Good financial records are necessary for several reasons:
- Daily operating decisions are based on financial reports.
- Bank loans require reports of past performance.
- Tax return numbers need proper substantiation.
For year-to-date comparisons and to make quick management decisions, financial reports must be done monthly. Remember, “As goes the month, so goes the year." You can compare the sales, gross profit, and net profit at, say, the end of May, with prior years and get a good idea of how the current year will finish. You can compare the total accounts receivable or payables with prior years to spot problems and then quickly take corrective action.
Here are some common business ratios you should monitor on a month-by-month and a year-by-year basis:
- Current Ratio - Current assets divided by current liabilities will measure your ability to pay your current debts.
- Debt to Equity Ratio - total liabilities divided by net worth will provide you with a year-to-year comparison of your ownership in the company.
- Receivables Outstanding - Receivables divided by average day's sales will give you the number of days' sales on the books.
- Profit Margin - Gross profit divided by net sales is one of the most important numbers to monitor regularly.
If you would like to learn more about using financial statements to make sound business decisions, we would be happy to assist you. No one was born understanding financial information, but it is easier to learn than most people think.
Please set up a meeting with us and ask as many questions as you like; we will help you until you are comfortable with business numbers and can use yours to increase your profitability.