Investing in a business these, in the midst of the financial crisis affecting the world over, can be a tough one to think about. There has to be a series of thinking, discussion with financial advisers, and a really strong reason to do so. That is why it is important for a business owner or investor to analyze a company’s financial statement before jumping into the water.

Though this task does not seem too easy, you can always learn the basics and be knowledgeable and ready to invest or not.

Here are some important tips for analyzing financial statements.

  1. A company’s asset is a good measure for its financial stability. Look through the company’s assets and see if there is anything there that can be converted to cash. Thinks like revenue, inventory and payables have to be inspected and analyzed.
  2. Though a company’s assets are high, it should still outweigh the payables or those which the company needs to pay. These include bills, overhead, expenses, salary and wages, loans, and others.
  3. Take a look at the cash flow. This reflects the company’s potential for liquidation. Take a look at the company’s ability to cover its short term expenses.
  4. Determine the length of time the company can stay afloat. Try to see the bank debts of the company and determine if these are paid up-to-date. Are the bills and utilities paid on time? Knowing these things will make you see if the company is surviving or thriving.
  5. The balance sheets can be your best friend. It is one thing that discloses what the company owns and owes. The assets are what the company owns or as its resources, whether these are tangible or intangible, and may include buildings, cars, equipments, and patents. Liabilities, on the other hand, may include loans, taxes, and other payables.
  6. Make use of the Statement of Retained Earnings. Broken into time periods, you can see here the accumulation of earnings deducted by net profit and loss.
  7. Are customers satisfied? In a business, it is as important to keep products of the best quality as it is to make sure that customers are happy. This can be reflected in the business performance report. If customers are happy, then they will come back for more transactions, but if they are not, they are bound to look for better companies elsewhere.

In order to do the following tips quickly and efficiently, it would help to get small business accounting software. These are intuitive and can be used by any company. It can do basically what an accountant can do without having to hire a person dedicated to work on it. With just a little training of the basics, this accounting software for business will work wonders for your company.

And if you are thinking of getting one, get Shoebooks, Australia’s number one accounting software, is the best. It allows you to bring your business everywhere and access it every time you need to.


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