Financial Statement Analysis

Make Smarter Financial Decisions with a Financial Statement Analysis

A financial statement analysis can increase profitability, efficiency, and stability in any company, but that’s only the case if you seek professional help from an experienced CPA. If you attempt to analyze your financial statements on your own, you will miss key points that could help you better plan for your future.

If you’re serious about the financial health of your company, a professional financial statement analysis can illuminate the past, present, and future, allowing you to make changes that will enable your business to thrive. A quality assessment is also able to reassure investors, shareholders, managers, and other interested parties in the future and direction of the company.

Multiple methods to develop a clear picture of your finances

A financial statement analysis, when conducted by a professional, is much more than a simple list of your finances and accounts. A professional CPA will be able to approach your financial information from different angles, providing you with a clearer picture of your financial situation.

  • A horizontal analysis compares two or more years of financial data in dollars and percentages, allowing you to see how your finances stack up year to year.
  • A vertical analysis shows each category of accounts on the balance as a percentage of the total, allowing you to compare the finances of each area of your business.
  • A ratio analysis calculates the statistical relationships between data, allowing you to compare your company’s operating and financial performance to previous years, as well as other companies.

Practical applications of a financial statement analysis

The information you learn regarding your finances is only any good if it can be immediately used to improve the operations of your business.

A skilled CPA is able to assemble this information and show you how to use it. The proper findings will help you:

  • Make decisions regarding investing and lending capital
  • Issue stocks and negotiate for a bank loan
  • Decide if you should continue or discontinue certain operations
  • Select an alternative to the structure of your business
  • And more

Take control of your business finances

If you want to make confident decisions regarding your business and its finances, seeking out the help of a team of professional CPAs is a must. A skilled accountant can help you dig through the information and make it clear so you can make informed decisions about the future of your business and its operations.

If you’d like to learn more about our services, or if you’re ready to take control of your finances, give us a call. We’ll create a customized financial statement analysis process just for you that addresses all of your concerns.


Financial statement analysis FAQ

Who can benefit from a financial statement analysis?

Many different people and businesses can benefit from having a professional financial statement analysis done. Some of the most common include:

  • Creditors
  • Investors
  • Management
  • Regulatory authorities

In general, if your company makes or spends money, it’s a good idea to request a financial statement analysis.

How do I know which analysis to request?

There are different analyses that can give you different pictures of your financial situation. You do not have to know which analysis to request because the professional accountant you hire will be able to tell you which ones would be most beneficial in your current situation.

This is especially important because there are many ways to conduct an analysis. For example, a ratio analysis can include a debt to equity ratio, accounts payable turnover ratio, liquidity index, and more. A professional will tell you which ones they recommend, allowing you to ask questions throughout the entire process.

What are intangibles, and can they be included in a financial statement analysis?

Intangible assets have no physical presence and they do not have a certainty of future benefits. They are non-separable from a company, have indefinite benefit periods, and are valued based on competitive circumstances, making them very difficult to value. However, most businesses are made up of around 50 percent intangible assets, so it’s important to consider them in a financial statement analysis. A few common examples of intangibles include:

  • Copyrights
  • Franchises and licenses
  • Brand names and trademarks
  • Computer software

Intangibles that can be identified are linked with specific rights or privileges with limited benefit periods in order to include them in an analysis. They are recorded at cost and are amortized over their benefit period, allowing them to be included in your financial records.

Are there any downsides to a financial statement analysis?

Although a financial statement analysis can help you paint a clearer picture of your financial situation, there are a few things you need to keep in mind.

The comparability between periods may not be accurate, especially if accounts have changed between periods. For example, what was previously listed under goods purchased may now be listed under administrative expenses.

Although you can compare your company to others with a financial statement analysis, each company may aggregate its financial information differently, which could lead you to draw incorrect conclusions if you aren’t guided by an accounting professional.

An analysis is a great way to learn more about your finances, but it does not take into account operational information, which can be integral in understanding future performance.

It’s best to think of a financial statement analysis as one piece of the puzzle when analyzing your operation.