How to Measure the Financial Growth of your Company?

Evaluating the total performance of your business involves several criteria. You must ask a lot of questions and they are required to be answered with evidence and facts. Are there disruptions in the operation of the business? Where is it leading to? What is occurring as growth drivers and blockages?

You can achieve answers to these questions when you accurately examine your financial obligations and overall performance. Your business is required to have enough profits, strong sales figures, and regular cash flow for it to strive in the market.

Measuring the financial state of a company

The income statement, balance sheet, and statement of cash flows are necessary financial statements. These statements are enlightening tools that dealers can use to analyze a company’s financial strength and deliver a quick portrait of a company’s financial health and fundamental value.

• The income statement: The income statement shows the results of a company’s business operations for a particular quarter or year. Through the income statement, you can observe the inflow of new assets into a business and ration the outflows sustained to produce revenue.
• The Balance Sheet: While the income statement is a history of the finances flowing in and out of a company, the established balance sheet is a description of a company’s financial position at a given point in time. The balance sheet depicts what a company owns (assets) and owes (liabilities) and the difference between the two (stockholders’ equity).

The balance sheet displays:

– The percentage of those assets financed with debt (liability)
– The percentage of equity (retained earnings and stock shares)
– Assets are listed in order from most liquid to least liquid
– Liabilities are listed in order of immediacy

• The Statement of Cash Flows: As with an income statement, the statement of cash flows indicates a company’s financial activity over a period. It projects where a company’s cash comes from and how it’s used to compensate for operations and/or to finance the future.

Key financial indicators to measure a company’s financial health

• Preparation of Key Financial Statements:

The basic reports that every company requires to generate are the balance sheet and the profit/loss statement. They are not only essential measures of the performance of the business but they are also required statutorily. They give an outline of the financial health of the company and show the owners everything that they need to know about how the company’s growth.

• Preparation of Aged Debtors Trial Balance:

Every month, an aged debtor’s trial balance should be prepared, so that the company can closely track all the customers who owe them money. They can keep the path of irregular accounts and follow up assiduously with nonpayers to get back their money.

• Preparation of Inventory Records:

There are many businesses that invest greatly in machinery, equipment, and raw materials. There should be accurate maintenance of inventory records. It displays how much stock was purchased, how much was utilized for making the final products, how much has gone waste, and whether any equipment has gone missing at any point in time.

• Preparation of Working Capital Statements and Financial Ratios:

Businesses should ask their finance experts to regularly gather working capital statements and periodic calculations of current ratios and quick ratios. This will show the number of assets they possess, as compared to their liabilities, and how many assets they can transform into cash.

• Preparation of Fund and Cash Flow Statements:

Fund flow statements and cash flow statements are crucial reports for a company that informs them just how much liquid cash is coming into the business.

• Analysis of Overheads:

Simply preparing financial statements is not adequate. The business requires to go beyond that and look for hidden messages in the numbers that point out weak areas. Check the overhead expenses, like rent, salaries, marketing expenses, etc.

• Analysis of Marketing Expenses:

What is the expenditure on advertising? Do the returns rationalize the cost, or is this an unwanted burdened cost to the company? It is important to measure how much money is being spent on other marketing avenues, and are these leads being converted into proper sales?

• Analysis of HR:

Human resources-related actions must be examined. What is the employee turnover rate? If the staff turnover ratio is very high, then the company is probably spending a considerable amount of money on new recruitments, payments to recruitment agencies, and separation processes of departing employees.

• Creation of Dashboards:

It is also important that the finance team prepares daily, weekly, monthly and yearly dashboards to keep all shareholders informed on the financial progress of the company. Trend analysis must be performed on a regular basis.

• Competitive Analysis:

Financial statistics of the company should be evaluated with your competitors so that your company is aware of how they are faring. Maybe your competitors can manage costs and increase profits in different ways. And if that is the case, then your company requires to take heed and catch up with the rest of the industry.

In conclusion, measuring financial performance has a vital role in ensuring that calculated decisions are taken in a timely manner and the growth plan of the business is held on to. Accurate financial reporting and financial analysis have a meaningful contribution to this examining activity and hence, should be given necessary consideration by the business.

How can we help?

One of the most important issues preventing your business from growing the way you want is accurate financial management. This means you can’t analyze the numbers in a way that makes you able to know your biggest risks and opportunities, not to mention your inability to properly plan the financial roadmap for your business growth.

We at Spicer-Pegler will give you instant financial reports as soon as you request them, summarizing your financial position with utmost accuracy. Moreover, we will provide you with advanced financial analyses extracted from your financial reports written in a simplified manner that is easy for you and your board of directors to understand and assimilate, providing you with the ability to make more accurate financial decisions.

We are experts at providing financial consultations to help you and your board of directors make your strategic financial decisions about your company’s future to achieve your business goals during various economic challenges.