Report Analysis – How to Read the Statements

Learn how to read and understand the basic financial reports used by all businesses. From the balance sheet to the profit and loss statement, understand why the reports are organized in this fashion. Find out how a cash flow statement works and the value it brings to the reader of this report. Finally, understand how the equity section and the reports about ownership are used for a small business.

Job Costing Reports – Introduction (Part 1)

Job Cost Reports

Job costing reports are management tools used to evaluate project or production performance against a known or estimated standard.   They are used in many business sectors and their respective industries.   The primary purpose of job costing reports is to identify discrepancies or beneficial results, usually in the form of financial values.   They can be used to report both financial and numerical production outcomes.

Liquidity Ratios

Liquidity Ratios

Liquidity ratios are a group of ratios used to measure the ability of a business operation to meets its current obligations.   Liquidity ratios are similar to the initial medical tests a patient receives at a doctor’s visit.   Doctors take blood pressure, temperature, and pulse rate.   The doctor wants assurance that the primary indicators of health are good.  Liquidity ratios are exactly the same.  The user wants to know that the basic measurements of a business indicate good health today.

Operating Profit Margin – Formula and Understanding

Operating Profit Margin - Formula and Understanding

Operating profit margin refers to the value earned as a percentage of net sales.   The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA).   This is a misleading reference as operating profit is actually defined differently by industry sector.   EBITDA is used primarily in valuing businesses.

Debt Ratio

Debt Ratio

Every business buys on account whether it is a traditional vendor account like that found in retail or simply using a credit card.   A third party provides credit which creates debt for the business.    The debt ratio reflects the percentage of assets covered by debt. 

Fixed Assets Turnover Rate

Fixed Assets Turnover Rate

The fixed assets turnover rate is another activity ratio whereby an income statement financial characteristic is compared to a balance sheet asset section.    In this case, comparing adjusted sales against historical cost of fixed assets.   This financial business ratio is only effective for business operations that are fixed asset intensive.  So with service based industries like carpet cleaning, professional firms and medical practices this particular ratio is impractical.

Working Capital Turnover

Working Capital Turnover

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement.  The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most general of the activity ratios.   This particular ratio measures the ability of management to efficiently utilize net current assets. 

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

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