Why is it important for you to understand your business’ financial statements


For a lot of businesses owners, preparing annual financial statements is a compliance formality to be fulfilled. Typically, this is how it goes – The senior accountant works with the auditors and replies to the queries. The accounts and the audit team prepares and finalises the financial statements. The business owners sit with the auditors in the last meeting to finalize the statements and sign them. And then it is over.

You do not read the financial statements to understand what they say. You might be looking at MIS reports, cash and working capital management but don’t review your own financial statements. This is an opportunity that you miss.

Analyzing financials provides a unique window into your business which can’t be substituted by MIS reports etc. They give you a bird’s eye view of all the functions of your business, from where you can dive into what you think needs attention. You can review the operational efficiency of your business from a financial angle, funding sources, operational and financial leverage, profitability and many other areas.

Besides, they also provide a common ground of comparison with other companies in your industry.  This comparison with the other similar companies or your competitors can provide crucial insights into your business performance, that no other internally generated MIS report can.