The ABC’s of Sound Financial Reporting

Making sure you have the right information to make excellent economic decisions starts with having a good groundwork and basis in solid financial reporting techniques. Keep in mind these statements and metrics are about much more than just understanding your own cash flow: they also present a snapshot of your company to potential investors and even create the portfolio that can help you to get a small business loan.

In short, solid financial reporting identifies and underlines the economic resources of any organization or business. There are quite a few different red flags and other indicators that you should be looking for in these statements whether you’re one of the people looking to invest in a business or someone who’s been tasked with looking after the financial end of the place where you work.

Interest level

Here’s an example of the kind of things that should raise your interest level. While many financial statements start out on an even keel, it’s important to understand why any unusual gains or losses in the financial reporting documents stick out. Remember, it is unusual for any kind of business to have these spikes in gains and losses on a frequent basis. However, with that said, the volatility of today’s business environment does account for some of the peaks and valleys you might see.

You’ll need to understand some of the jargon that goes with these reports and one of the most commonly misunderstood phrases is solvency. Solvency is all about the ability of a business to be able to meet its debts on time and solid financial reporting will be able to pinpoint a company that’s in distress using this metric as well as a few others.

Investor standpoint

From the investor standpoint, it’s good to keep in mind that there’s a lot more to look at than just the financial reporting documents before you sign on any dotted lines. It’s important for investors to understand the macro picture which includes the political events and economic conditions surrounding any business or organization as well as technological and executive changes.

With everything that’s been said here, it’s important to underline what thorough financial reporting requires. Generally, you’re looking at a combination of statements surrounding cash flows, balance sheets, income statements, and statements of retained earnings. These combined documents are so important that financial analysts often use them to make predictions about a company’s future stock price.