Having a business is not easy work to do. It is not about selling and getting money out of your product. There is an underlying process with it. It also comes with a big responsibility. A business is an entity that engages in professional, commercial, or industrial activities. There are two types of companies: for-profit entities and nonprofit organizations. These organizations can either be for-profit entities or serve a charitable purpose or advance a social cause. There are many sizes and scales of businesses, from sole proprietorships to multinational corporations.
It may be challenging for you to grasp the terms above, but you need to familiarize yourself with these things as a company owner. To run your business well, you also need to understand what a financial statement can do to your company. With this ability, you can do many things around you.
Statement of Financial Position
The statement of financial situation or balance sheet will give you a quick overview of all company resources and how they were funded, whether it was through capital investment or liability. The balance sheet shows all assets, liabilities, capital, and other information at the reporting date.
Additionally, the balance sheet can provide more valuable insight when analyzed with ratios and metrics. Leverage ratios, for example, can be used to assess the company’s capability to meet its financial obligations. The percentage of debt to equity can help determine if the company relies too heavily on debts to function. The business’s operating liquidity can be viewed as working capital. It is calculated by subtracting current (short-term) liabilities from its assets.
Some business owners seek help from simple business accounting software whenever they need solutions to some accounting matters. If you are starting, you can also opt for the best bookkeeping app to help you understand more your financial statement. For more details about using the financial statement in your business, continue reading the infographic below from KIPPIN.