How Financial Statements Affect Business Decisions
It is not an easy task to make decisions that can alter the fate of the company, evaluating the risk and assessing the growth potential before acting. Managers and executives require a lot of time, careful study, and research before making these major decisions. One of the key factors that determine whether a business decision will come to fruition is usually the financial capability of the company to execute it.
Decisions change the future
When you are growing a business, there are dozens if not hundreds of decisions to be made. You can decide to hire 50 new employees, open a new branch, organize a massive marketing campaign, and countless other decisions. However, keeping track of your finances and spending only what you can afford is what keeps your business sustainable and growing steadily.
This is where financial statements can have a major impact on the managerial decisions taken by those at the top. While there are some differences between nonprofit and for-profit entities, all businesses typically prepare these three most common financial statements — the balance sheet, the income statement, and the cash-flow statement. Financial statements are neutral; they present an accurate picture of the activities of the business over a defined period and each one of them serves a purpose.
What do financial statements indicate?
This information is then taken to process the balance sheet, a more in-depth and wider overview of how the company is performing. You can think of the income statement as a snapshot of the exact financial situation of the company, while the balance sheet is more “zoomed-out” on how the company is performing.
The balance sheet is a summary of all the financial balances under the company. This namely includes its assets, liabilities, and equity. It depicts a picture of how easily a company can handle changes in revenue while staying afloat. Balance sheets can also identify other trends, such as how the receivables cycle works, how net profits are being used, and how often equipment is replaced.
Finally, the cash flow statement is everything you need to understand where the company’s money is being spent and earned. To summarize, it is the inflows and outflows of your cash balances. These movements of money will account for the financial products from the operation, investment, and financing activities.
Are you ready to make a decision?
Financial accounting is a way for businesses to keep track of their operations, but also to provide a snapshot of their financial health. By providing data through a variety of statements including the balance sheet, income statement, and cash flow, managers have strong resources to base their business decisions upon.
Companies usually don’t have trained personnel during their startup stage to perform these statements accurately. That’s why we have curated a list of the best financial and accounting firms in Egypt to help you set up an effective brand strategy to give you a major edge over your competitors.
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