Do you know how important it is to do a financial analysis of your company? Or how does having reliable financial data help you make a decision? If your answer is “no”, you don’t have to worry. Most entrepreneurs do not use the financial analysis process. But financial analysis is a very useful process for you to leverage your company, attracting more customers and investors. Keep reading and learn about the importance of financial analysis in your company and how the company financial analysis software can help you.
Financial analysis concept
Financial analysis is the study of a company’s profit-generating capacity. It is also a way of measuring development. Through it, SMEs find methods that allow them to assess the financial situation of the business. The goal is to determine your performance for the best use of your resources. Thus, entrepreneurs can measure the company’s ability to generate profit through indicators, know whether the company’s finances will be positive or negative, helping them to make short, medium, and long-term decisions.
The importance of financial analysis
Many companies have been struggling to impose their business. These situations can be caused by several reasons, for example, internal problems of the institution itself. Some of the reasons that cause the drop in income or profit generation of a company are poor management, lack of experience and planning, uncontrolled cash flow, lack of working capital, etc. To be a good manager of the company it is essential that he/she identifies the company’s financial situation. In this way, you gain more ease when making decisions in a short period of time. It is extremely important that you keep your accounting data up to date.
In this sense, the financial analysis software of a company can help you in this regard, as the financial statements, as well as all data and information provided by accounting, will help you to identify any problems in financial management. A company that has its finances up to date gives a good image to the public. It starts to attract more customers and even investors. There are several ways or techniques through which we can compose a company’s financial analysis.
Also known as structure costs, they are those that do not change their value in the event of an increase or decrease in production. Its follow-up must be regular (it must always be studied, minimizing its impact). Examples of fixed costs are security, equipment rentals, cleaning, etc.
Variable cost varies according to the production, the volume produced or the volume of sales, directly influencing the values of the products in a certain period of time. Examples of variable costs are raw materials, sales commissions, and inputs, etc.
It is the amount of money leftover from the revenue that was obtained from sales after the removal of variable costs and expenses. This makes it possible to analyze the break-even point and profitability. The greater the positivity of this index, the better the health of your company is.
This should be one of the first assessments you should have. The prices of your products and services must contain a segment of strategic action, considering the factors of competitiveness, consumer view, competitors, profitability, and the demand for the product or service.
What are the economic indicators?
The economic indicators are for us to see how the financial health of the entity is doing. Through them, comparisons of performance over a certain period of time are known, assessing the positivity of the choices made. Even showing occasional errors that can still be corrected and reducing its impact on the institution’s economies. Below are some indicators that you should always be aware of –
Profitability and Profitability Index: It serves to demonstrate the relationship between operating profit and sales. Through this index, it is possible to know the ability to analyze a company’s net profit.
Liquidity Ratio: It evaluates how much the company can assume with its obligations. The information for the calculation is taken from the Balance Sheet.
Indebtedness index: It evaluates the volume of debts with the company’s capital. It is possible to monitor how much of the company’s movements use third-party capital.
Average payment term index: This metric is based on the average number of days the company takes before it can pay its debts or obligations to suppliers.
Average receipt term ratio: This is the average number of days the institution needs to wait until it receives the value of its sales.
Influence of correct and reliable financial data
We generally don’t pay much attention to our company’s financial data, often due to lack of time, or even carelessness. However, having reliable data helps us to analyze the information especially that related to finance, which is crucial to determine whether our decisions were positive or negative, even to see if any past action has led to an improvement in the company’s economy. So we can find out if there were frauds or errors. An entrepreneur should always rely on the best financial analysis software of a company.
Having good financial analysis software will help you in several ways. There are two entities that can fail your company – one is you and the other is your financial data. Having bad accounting directly affects your company’s data analysis. Thus, it is crucial that the assessment is clear and certain. Only then we will have a vision of how the company’s profits and losses are going. There are several analyzes that software does, which help the company moving towards its financial stability.