Financial statements are an integral part of business performance indicators. As owners are busy with the day to day operations; financial record keeping and performance reports are left for year-end with tax reporting.
Financial statements provide management relevant, reliable and comparable information that will help owners/managers make informed economic decisions.
Let’s begin with balance sheet; it’s a snap shot of a business at a specific interval and conveys the following:
- Accumulated cash in company bank accounts
- Receivable balances; sales not yet collected
- Product base business; levels of inventory on hand
- Funds invested in capital assets
- Regular vendor payables; for on-going regular business operations
- Payroll taxes liabilities.
- GST payable; GST collected less paid
- PST payable; PST collected on sales
- Short and long term business debts
Income statement is financial performance reporting over specific accounting period and conveys the following:
- Sales for the period
- Cost of sales; direct labour, materials and other supplies
- Other operating costs not directly related to sales
- Overhead costs such as rent, telephone, utilities etc. incurred regardless of sales levels.
So, what is the importance of quarterly as opposed to annually?
- Quarterly financial statements are comparable over time
- Quarterly communications in the year where there is idle cash versus shortage of cash
- Timing of sales versus collection of receivables
- Timing of purchases versus payment of payables
- Overall sales trend of the business, are sales increasing, decreasing or remain flat
- Overall cost of goods sold relative to sales, does cost of goods sold increase, decrease or remains flat
- Relationship between sales and costs of goods; gross margin; will convey a quarterly trend for the business of its gross profitability
- Net income before income taxes or net losses for the business will convey the trend of the business
- Increases/ decreases in cash both short and long term effect of performance trend
- Increases/decreases in short and long term debts
- Opportunity to maximize working capital, by properly identifying trends of idle cash
- To be relevant; information must be timely
Quarterly financials greatly benefit business owners and management.