Financial statements present a lot of information about an enterprise's production and business activities, but among them are key indicators that investors, banks and lenders always want to read in financial statements. business before they decide to invest or lend the business. Financial statements are like a detailed report on the state of financial "health", showing how well your business is doing.
Net Profit – The first indicator investors want to read from financial statements #
The financial statements will present the company's net profit in the income statement. Net profit (also known as net profit, net income or possibly net profit) is the profit left over after total sales minus all expenses, including corporate income tax.
Profitable but unstable profits sometimes indicate a bad business situation, and conversely, loss in the early stages when expanding, just starting up, can be a good sign if your business are on the right track to achieve profits later. Therefore, this is one of the indicators that readers of the report are interested in first.
Revenue from sales and service provision #
When your business needs funding, presentations about your business' products or services can be great and engaging, but the real question investors care about is whether people are willing to pay for it. Or use it? And that is reflected in the sales and service provision index. This indicator generally shows an upward or downward trend in the service products that the business is providing.
To attract investors, businesses often prepare a track record of their sales fluctuations year by year, at least 3 years. The dossier explains in detail the causes of variation as well as the corresponding changes in comparison over each period.
Gross profit margin #
Gross profit margin is an metric used to gauge a company's business model and financial health calculated as gross profit divided by sales, allowing analysts to compare business models. business with a quantifiable metric. Investors want to see the profit margin of your business both overall and at a granular level down to individual products and services.
A business with a higher gross profit margin than another proves that it is more profitable and controls costs more effectively than its competitors. In addition, if the enterprise's profit margin is still higher than the industry average, it shows that the enterprise's efficiency in controlling production costs is very good, attracting investors and lenders. Higher margins often lead to better returns for investors later on.
Cash flow #
The statement of cash flow (Cash Flow) is understood as a summary report of the movement of cash inflows and outflows (ie receipts and expenditures) of a business. Maintaining a positive cash flow statement is not a complete reflection of the company's ability to pay and does not satisfy the reader of the financial statements. Because of how the business's cash flow operates, how effectively it is still necessary to carefully read the information about the detailed cash flows shown inside, which is the point that the readers of the financial statements are interested in finding out.
Liabilities scare off investors for two reasons. One, simply, if you go out of business or go bankrupt, the creditors will get their money back before the stockholders, or capital partners. Second, and more importantly, debt payments will take up all of your business's cash. Large debt payments, large short-term liabilities, will greatly affect the ability to pay other expenses, the ability to cope with unexpected situations of the business. Therefore, the debt ratio is also a concern of investors when reading financial statements to assess the business performance of an enterprise.
Receivables turnover ratio #
Receivables turnover ratio is an accounting measure to check the efficiency of a company in collecting receivables and debts from customers. This ratio shows how effectively a company is in granting credit to their customers and in their ability to collect short-term debt.
This tells investors two important things. First, what is your business plan and what are you willing to do to make sure it gets paid? An investor looking for a profit does not want to work with a business that is not good at tracking customer payments. Second, how stable are your customers? Slow revenue growth combined with a large bad debt ratio shows that many customers of your business do not have good business activities or businesses are occupied with high capital and do not tighten management. This increases the risk of your business model and investors and lenders will feel unattractive, they will be forced to look for and consider offsets in other metrics if they continue. want to learn and consider investment.
In addition to the key metrics above, financial statement readers like investors and lenders also read and learn more information before making their decision. Within the framework of the article, EXPERTIS hopes to partly help businesses understand the importance of financial statements as well as the presentation of the information inside before sending them to the readers. Any problems that need further advice, please contact our Consulting Department for timely answers.