Step by Step in Writing a Financial Statement Analysis
As a business owner, you have to be able to know where your business stands related to the financial situation. Learning about the position of your business will help you to make decision what to do. In this case, you will need to make a financial statement analysis.
How to Write a Financial Statement Analysis
Before you start writing a financial statement analysis, you have to learn how to make it. There are some steps that you need to follow so that the financial statement analysis form you make will be effective. For the detailed steps, let’s see the following further explanations.
First of all, you have to identify the economic characteristics of the industry. It relates to the activities involved in creation, manufacture & also distribution of the services or products in your business. Therefore, you need to determine the value chain analysis for your business industry.
Secondly, what you have to do is to identify your business strategy. It means you should find the nature of the services or products offered. You will need to learn about the costs’ control, the brand loyalty creation, profit margin level, and the product’s uniqueness to learn different strategies.
So, you can guarantee that the strategy of your business implemented will bring the actual value to the profits. You also need to look into other factors that can affect the business strategies to be used such as the industry diversification, geographic diversification, and also supply chain integration.
Thirdly, it is also important to assess the quality of the financial statement of your business. It is the point to look into your business financial statement analysis related to the financial position. Here, you will need to review the key in the context of relevant accounting standard in your business.
In this point you have to answer whether the balance sheet becomes a complete representation of the firm’s economic position or not. Here, you should assess the earning of the firm to depict an economic performance. You also need to know where you use the money for your business.
Next, what you should do is to analyze the current profitability & risk of the business. There are some tools that you may need for analyzing the current profitability & risks of the business such as risk or market valuation, debt management or coverage, profitability, asset management & liquidity.
Then, it is also important to prepare the forecasted financial statements. Here, you should make a reasonable assumption related to the future of the firm & its industry. Besides, you also need to determine whether the assumption will have effects on your business’s funding & cash flow or not.
Last, writing a financial statement analysis requires you to determine your business’ value. You may need to consider other approaches such as accounting based measures & relative valuation. It is needed to maintain the financial status of your business. So, you have to follow these all step above.
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