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Financial Statements: Are you winning or losing?

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Posted 2022-07-26
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Don’t be left behind – understand the numbers

Making sound and informed decisions for your organization requires accurate data. Financial statements offer a comprehensive view of an organization’s financial health, performance, and position. But deciphering their contents can be tricky if you’re unfamiliar with accounting terminology or the analysis process.

When you can speak the language of finance, you have the power to build stronger strategies, expand your influence, and make better business decisions.

What is a financial statement analysis?

Financial statement analysis includes examining an organization’s various financial documents to make an informed decision about that business. In addition, this analysis offers insight into the health of the organization. Supervising an organization’s performance and progress toward key strategic initiatives is essential.

The top 3 reasons why financial statement analysis matters:

  1. It allows you to assess an organization’s liquidity, which measures its ability to pay off its short-term obligations. This can give you an impression of whether an organization will meet its financial obligations in the near future.
  2. Financial statement analysis can help you identify trends within the organization. These trends can give you an idea of how the organization performs over time and if it will meet its financial goals.
  3. Financial statement analysis can help you compare an organization’s performance to its competitors.

The 3 main types of financial statements: 

Common financial statements you may analyze include balance sheets, income statements, cash flow statements, and statements of shareholder equity. These documents offer different but essential information about an organization’s financial position.

  1. Balance Sheets: A balance sheet offers a glimpse into an organization’s assets, liabilities, and equity at a given time. These documents can give you an idea of the organization’s financial health.
  2. Income Statements: An income statement shows an organization’s revenue and expenses over a period to determine an organization’s profitability.
  3. Cash Flow Statements: A cash flow statement shows an organization’s cash inflows and outflows over a given time. This information provides an idea of the organization’s overall cash position.

The 2 keys ways to analyze financial statements

Now that you know what financial statements are, you may wonder how to actually read and analyze them. You can do this in a few different ways, but vertical and horizontal analysis are the two most common methods.

  1. The vertical analysis involves looking at the data within each financial statement and comparing it to a benchmark, such as the organization’s total assets or revenue.
  2. The horizontal analysis involves looking at the data within each financial statement over time. This allows you to see how the organization’s financial position has changed over time.

And this is only the beginning – there’s more to learn.

At UBC Sauder, we offer you the ability to brush up on your accounting and finance skills with our Executive Education programs.

Our Financial Statement Analysis for the Non-Accountant program over two concise days is designed to give you a deep understanding of financial statements and how to use them to make informed business decisions.

Contact our team to learn more.