The Importance of Reading and Understanding Financial Statements

Reading Financial Statements
Financial statements can be difficult to analyze, but they are critical to the health of your business.

For many, financial statements can be difficult to unpack, but they are vital to understanding the success and growth of your business regardless of size. There are a wide variety of financial documents that you will need to be aware of. While it is nearly impossible to give you a full overview of each type in a single blog post, today we’ll take you through some of the most common documents and what you will need to know. Once you have a basic understanding, you’ll be able to navigate your financial situation much more effectively.

The Basics

There are several types of documents that you need to know about as a business owner or professional. One of the most important documents to understand is the Income Statement, but balance sheets, and income statements are essential as well. The goal is to understand how much money is owed, how much is being made, and the difference between what is outgoing and incoming each month. Most of the time these statements are straightforward and honest, but in some cases, they can be altered to hide the real value of a company or business.

The Reports

Many of the aspects that you need to understand fall into the contents of an annual report – which is compiled to share with employees, regulators, shareholders, stakeholders, unions, and vendors to explain the year’s business. While not every company compiles these, they are a useful tool that can help you meet and plan for yearly goals. They are often a chance for companies to do soft marketing and show more basic levels of information. A balance sheet and an Income statement are far less official documents and show smaller scale snapshots of the assets, liabilities, and income. These are both useful for getting a look at budgeting but are less inclusive than the other two.

Beware False Numbers

If you are trying to look at a company’s assets and financial statements before making a purchase or investing, it’s important to note that there are several factors to consider. There are instances where management groups can use specific numbers and omissions within their statements to make their company appear more profitable than they actually are. While this isn’t the norm, it is important to note that it is a possibility.

PL Consulting Can Help You Plan Your Budget!

PL Consulting offers a diverse range of bookkeeping and other financial services. Each of our services is customized to fit the needs of our client and his or her business plan. Our team can help you with each step of your business from organization, to budget, to financial maintenance. We are located in Pikesville at 119 Old Court Rd Baltimore, MD 21208. Contact us at 410.764.3731 or info@plcfo.com so that we can assist you with your bookkeeping needs. Remember to stay up to date with everything PL Consulting by following us on our social media platforms via Facebook, Twitter, and LinkedIn.

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