Why financial reporting?
Timely and meaningful information underpins the effective functioning of any organisation. Business owners and managers use financial information to manage and direct their operations, while external stakeholders – investors, suppliers, creditors, banks, and government – use it to make investment decisions, to undertake transactions with organisations in confidence, and to exercise legal and taxation requirements.
Improving financial reporting
Given the critical role that financial statements play, it is imperative that efforts are made to examine ways to improve their quality, and to understand their purpose and limitations in providing a comprehensive view of an entity’s financial position.
While there are many ways that real-time information can improve financial reporting, below are three important ways companies could improve their financial reporting...
Set Forecasts, goals and KPIs
If your financial reports are to be meaningful then they must be assessed alongside your business forecasts, goals and Key Performance Indicators (KPI’s). A seemingly poor net profit margin might be more than acceptable against your benchmarks that took into account farming drought conditions or a business relocation or a significant investment in new operating equipment.
Setting well-researched benchmarks for your business is critical to assessing your financial reports with the right criteria.
Achieve Faster Month-End Close
A financial reporting headache for many companies, both large and small, is closing the books at the end of the month. This can be an intensive undertaking for larger enterprises with numerous rows of data and a large number of people involved in the process. This can cause delays in a company’s month-end close and even, potentially, lead to questions about actual versus perceived performance. Improving recording systems, Point of Sale (POS) systems or introducing more regular billing cycles can take the pressure off end of month recording and deliver faster reports for more decisive actions.
3 Key Financial Reports
The Profit & Loss Report
The most important financial statement for the majority of users is likely to be the Profit & Loss Report or Income Statement, these reflect the ability of a business to generate a profit. However, it does not reveal the amount of assets and liabilities required to generate a profit, and its results do not necessarily equate to the cash flows generated by the business
The Balance Sheet
The balance sheet is of considerable importance when paired with the income statement, this reveals the amount of investment needed to support the sales and profits shown on the income statement.
Cash Flow Statement
A possible candidate for most important financial statement is the statement of cash flows, because it focuses solely on changes in cash inflows and outflows. This report presents a clearer view of a company's cash flows than the income statement, which can sometimes present skewed results.