What Are the Benefits of Financial Statement Analysis?

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The benefits of financial statement analysis are that it can help your business thrive. Through financial statement analysis you can determine and identify financial strengths, weaknesses and relationships that exist in your company.

Keep Current on Debts

  • The Current Ratio analysis is your total current assets divided by the current liabilities on your balance sheet. This can help you determine whether you have adequate liquidity to meet upcoming debts.

Determine Profit Margins

  • How much does it cost to produce your product? You can use a Gross Margin Percentage to determine this, which is total revenue less cost of sales divided by total revenue. Use this to help reduce costs of production and help increase your bottom line.

Track Inventory

  • You can better manage inventory with turnover ratios or determine whether you have enough inventory to meet projected sales figures.

Determine Debt To Equity

  • A Debt-to-Equity Ratio determines how much total liabilities are in relation to your equity in the business on a balance sheet. Do you have twice as much debt as what you own in the company? Or do you have more equity than what you owe?

See Improvement Over Time

  • Compare your financial statement analysis numbers over time to spot trends and changes that affect your business.

References

  • Photo Credit Jupiterimages/Photos.com/Getty Images
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