Techniques To Improve Internal Financial Reporting & Analysis
Having sound financial reporting is an important practice for any business. Ensuring that your internal reports are not only timely but accurate and complete is key to the financial health of your business. How does your finance department measure up when it comes to providing this key information to management? Here are some key techniques to help improve your internal reporting and analysis:
Financial Statement Analysis
The balance sheet and income statement are only the starting points for successful financial management. Allowing time in your month-end close for other financial statement analysis methods is a necessary step in successful financial reporting. Improved financial statement analysis can help you:
- Locate and correct accounting errors;
- Identify areas for business improvement;
- Identify more problem areas and react to problems quickly;
- Identify business opportunities; and
- Monitor success or failure of business initiatives.
Fluctuation and Ratio Analysis
Fluctuation and ratio analysis is one of the most basic forms of financial statement analysis.
Fluctuation analysis is as simple as presenting the changes in the balance sheet, income from period to period. Both dollar and percentage changes should be utilized in this analysis. Historical financial statements are an excellent tool to help forecast and plan for your business. Understanding the relationships among the differences is an important step. Unusual and unexpected changes should be investigated.
Ratio analysis involves analyzing financial statements using key financial ratios. Ratios can provide insight into the operation of a business if they are properly evaluated and investigated. Here are some tips to making your ratios useful in your financial reporting.
- Compare with the same ratios, for the same company, from previous periods;
- Compare with some predetermined standard, such as a budget; and
- Compare with the same ratios for other companies in the same industry.
Keep Improving and Evolving
Financial statement analysis is obviously a necessary function to effectively manage your business. It is also important to continuously review and monitor your financial reporting process and ensure it continues to evolve and is useful to the users. For more details on how you can ensure your business has that competitive advantage, join us for our Annual Tax & Financial Planning Conference, where we will be presenting a one-hour session on this topic. Registration is complimentary and CPE credit will be offered. Register today.
Contributing Author: Charla A. Roth, CPA, CDA, is an audit partner with over 18 years of experience providing auditing, accounting and consulting services. Charla specializes in working with manufacturers, architecture and engineering firms, and nonprofit organizations.