Report Analysis – How to Read the Statements

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Learning to read and analyze financial statements is crucial to the success of the business. If the owner can decipher the information and make good decisions, the company will improve. But to make good decisions, the owner has to be able to understand what they are reading. This section teaches the business owner how to read the financial statements.

These articles are in-depth and are educational in nature. If you are looking for some quick lesson, this isn’t the site for you. It took me seven years of education and 25 years on the job to develop the necessary skills to truly understand financial statements. I can’t teach you nor anyone in 10 minutes or less. I’ve kept the information simple and easy to understand. If you have questions, contact me via the ‘My Services’ page in the footer below.

 

 

FEATURE ARTICLES:

  • Accelerated Depreciation – An Explanation

    Accelerated Depreciation - An Explanation
    When it comes to depreciation, no two businesses are alike. Unlike traditional straight line depreciation where the asset value is costed out to depreciation expense in equal increments over a given life expectancy, accelerated depreciation expenses the cost at higher values during the earlier accounting periods and at a lower amount towards the last half ...
  • Accounts Payable Turnover Rate (Ratio)

    Accounts Payable Turnover Rate (Ratio)
    The accounts payable turnover rate is a business activity ratio measuring the frequency of the company’s ability to pay its vendors and suppliers. The numerical value is customarily reported as an annual value. The higher the number, the more often the payables are cleared (paid). A ’12’ would indicate that all payables are paid every month (360 days/12 = ...
  • Accounts Receivable Turnover Ratio

    Accounts Receivable Turnover Ratio
    One of the activity ratios in business is the receivables turnover ratio or rate. This ratio measures the frequency of collecting the entire balance of accounts receivable during a standard accounting year. The ideal turns rate is twelve with a higher value indicating an aggressive collection process. A lower value is a warning about accounts receivable management.
  • Accrued Payroll – An Explanation

    Accrued Payroll – An Explanation
    Accrued payroll is a current liability comprised of four sections. The first is the amount of payroll earned by staff and not yet processed or paid. The second is the dollar value of personal time off accumulated for each employee aggregated into one number. The third consists of payroll taxes owed to the respective governmental authorities and ...
  • Activity Ratios

    Activity Ratios
    The majority of activity ratios measure the ability of the company to turn assets into earnings. All businesses utilize a simple principle, buy an asset at a low price and sell it at a higher price. Even service based businesses do this. Labor is purchased for a certain value and then sold for a much higher price. Retail ...
  • An Explanation of Current Assets

    An Explanation of Current Assets
    Current assets carry the most value to the small business entrepreneur because of the cash conversion aspect.
  • Business Ratios (Introduction)

    Business Ratios (Introduction)
    Ratios are used in business to compare companies of different sizes within the same industry. The goal is to discover the best investment for return on your stock purchase. Business ratios essentially equalize different size companies within the same industry. A common mistake is to compare two different industries within the same sector (explained below).
  • Cash Ratio

    Cash Ratio
    One of the liquidity ratios used in business is the cash ratio. It is a much more effective tool for small business than the traditional current or quick ratio. Although the cash ratio is more difficult to manipulate in small business, most entrepreneurs miscalculate the result
  • Current Liabilities Section of the Balance Sheet

    Current Liabilities Section of the Balance Sheet
    The current liabilities section of the balance sheet identifies those amounts due to third parties within the current year. These include accounts payable, credit card accounts, accrued payroll, taxes, unearned revenue, deposits and those amounts due within one year related to debt instruments.
  • Current Ratio

    Current Ratio
    The current ratio is an inappropriate relationship to use or rely on in small business. The ratio is best suited for large publicly traded organizations. This article explains the basic formula for the current ratio, how to identify the ratio in reading financial statements, its purpose and the many drawbacks for its use with small business.

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