What Business Decisions Could Be Made Using the Income Statement?

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An income statement provides a trove of operating data that a business owner can use to improve corporate operations. If you’re an entrepreneur, reviewing this accounting report on a regular basis can help you adjust the company’s strategic paths based on the economy. If your start-up is off to a promising launch, a preliminary income statement also helps investors gauge the firm’s long-term economic viability.

Improve Market Share

Analyzing a statement of profit and loss gives corporate leadership the tools necessary to gauge competitors’ prowess in the marketplace. By comparing sales trends with rivals’ performance metrics, corporate executives familiarize themselves with the marketing strategies that competitors mount. For example, a company may estimate its market share for a particular product, compare this stake with competitors’ shares and draw up adequate tactics to spur sales growth. Steadily improving the corporate market share helps prevent operating headaches among top personnel, especially when eroding sales translate into deteriorating cash levels.

Cut Expenses

Poring over a statement of income helps budget analysts ferret out the inefficiencies and processes that cost the firm a lot of money. Factory-related costs are often substantial components of a company’s expense structure, especially if the firm is a manufacturing company with international operations. A thorough review of inventory costs can help lower storage charges. For example, corporate leadership may direct warehouse foremen to reduce costs by clearing out all inventories at the end of the year so that the company doesn’t have any leftover items taking up shelf space. Senior executives also may recommend cuts in operating expenditures, which may range from layoffs to reductions in logistical charges, such as rent and transportation.

Divest Nonperforming Units

Senior management often consults with department heads and segment chiefs for feedback on proposed strategic decisions. Creating a forum through which business unit leaders speak their minds helps top leadership set performing segments apart from activities that generate less than mediocre revenue. By reviewing the firm’s revenues and expenses, management can decide which segment to sell. However, divestiture activities often are not a flip of the switch or an easy transition, and senior leadership may take a peek at other reports before making final sale decisions.

Support Thriving Businesses

A profit-and-loss report indicates to the rest of the world the corporate segments that are thriving, emphasizing blockbuster products that positively affect the corporate bottom line. Consequently, top management does not declare an end to operating strategies that have proved successful in the past. Specifically, senior executives may decide to invest heavily in performing sectors with a promising potential, helping the firm solidify its foothold in the marketplace.

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