Good financial records are necessary for several reasons:
- Daily operating decisions are based on financial reports.
- Bank loans require reports of past performance
- Tax return numbers need proper substantiation
The group CPA Prepare financial reports monthly. For year-to-date comparisions and to make quick management decisions, financial reports must be done monthly. "As goes the month, so goes the year." You can compare the sales, gross profits, and net profit at, say, the end of May, with prior years and get a good idea of how the current year will finish. You can compare the total accounts recivable or payables with prior years to spot problems and then quickly take corrective action.
Here are some common business ratios you should monitor on a month-by-month and a year-by-year basis:
- Current ratio - Current assets divided by current liabilities will measure your ability to pay your current debts.
- Debt to equity ratio - Total liabilities divided by net worth will provide you with a year-to-year comparison of your ownership in the company.
- Receivables outstanding - Recivables divided by average day's sales will give you the number of days' sales on the books.
- Profit margin - Gross profit divided by net sales will allow you to compare your business operations to other companies in your industry, as well as monitor your own operations over time.
Understanding financial statements can increase business profits. If you would like to learn more about using financial statements to make sound business decisions, we would be happy to assist you.
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Meaningful, well-organized financial records ensure that your business operations will run more efficiently on a daily basis and are the foundation of a successful business. Our qualified staff can assist you with the day-to-day tasks associated with bookkeeping.