With the development of the market economy, enterprises pay more and more attention to financial management. Financial statements are one of the most direct and important ways to reflect the financial status of a business. There are many indicators in the financial statements, how to understand these indicators correctly and evaluate the financial health of the company from them? This article will introduce it to you in detail.
1. Common financial statement indicators.
1.Balance sheet.
A balance sheet is a statement that reflects the financial health of a business. It mainly consists of three parts: assets, liabilities and owners' equity of the enterprise. Among them, assets are the resources and rights and interests owned by the enterprise; Liabilities are debts and other economic benefits payable by a business; Owner's equity is the investment and income of the owner of the business in the business.
In the balance sheet, there are several important indicators such as total assets, net assets, current assets, non-current assets, current liabilities, non-current liabilities, etc. These indicators can help us better understand the company's assets and liabilities and further evaluate the company's financial health.
2.Income statement.
An income statement is a statement that reflects the profitability of a business. It mainly consists of three parts: revenue, cost and profit of the enterprise. Among them, revenue is the sum of all the income of the enterprise; Cost is the cost paid by a business to obtain revenue; Profit is the net income of the enterprise.
In the income statement, there are several important indicators such as total revenue, sales revenue, cost, gross profit, net profit, etc. These indicators can help us better understand the operating status of the enterprise and further evaluate the financial health of the enterprise.
3.Cash flow statement.
A cash flow statement is a statement that reflects the cash flow of a business. It mainly includes three parts: business activities, investment activities and fund-raising activities. Among them, operating activities are the cash flows generated by the daily operation of the enterprise; Investment activity is the cash flow generated by the investment made by the enterprise; Financing activities are the cash flows generated by enterprises to raise funds.
In the cash flow statement, there are several important indicators, such as net cash flow from operating activities, net cash flow from investment activities, net cash flow from financing activities, etc. These indicators can help us better understand the cash flow of the company and further evaluate the financial health of the company.
2. How to correctly understand the indicators of financial statements?
1.Comprehensive analysis.
The indicators in the financial statements are interrelated and mutually restrictive. Therefore, when evaluating the financial health of a company, we need to conduct a comprehensive analysis of multiple indicators in the financial statements. For example, although both total assets and net assets reflect the size of the company's assets, the former does not reflect the company's debt status, while the latter can. Therefore, when evaluating the financial health of a business, it is necessary to consider both indicators.
2.Side-by-side comparison.
Horizontal comparison refers to the comparison of the financial statements of the same enterprise at different points in time to observe the changing trend of the company's financial position. For example, comparing the balance sheet and income statement of the same company for two or three years can be used to understand whether the company's operating conditions have changed significantly.
3.Longitudinal comparison.
Longitudinal comparison refers to the comparison of the financial statements of different companies in the same industry to understand the financial position of the enterprises within the same industry. Through longitudinal comparison, we can understand the market position of the company in the same industry, the level of profits, etc., and further evaluate the financial status of the enterprise.
3. How to evaluate the financial status of the enterprise?
1.Financial soundness.
Financial soundness refers to the degree to which assets and liabilities are balanced in a company's balance sheet. When the assets of the enterprise are greater than the liabilities, it indicates that the financial stability of the enterprise is better, and vice versa. At this time, we can judge the financial soundness of the enterprise by observing indicators such as net assets, current ratio, quick ratio, etc.
2.Profitability.
Profitability refers to the ability of a business to achieve profitability in the course of its operations. At this time, we can judge the profitability of the enterprise by observing the gross profit margin, net profit margin and other indicators in the income statement.
3.Solvency.
Solvency refers to the ability of a business to pay off its debts. At this time, we can judge the solvency of the enterprise by observing the current ratio, quick ratio and other indicators in the balance sheet.
There are many factors that need to be considered when correctly understanding the indicators in the financial statements, comprehensively analyzing the financial situation, and evaluating the financial status of the enterprise. Only by comprehensively analyzing and evaluating the financial situation of the enterprise can we better help the enterprise formulate corresponding financial management measures and improve the economic efficiency and market competitiveness of the enterprise.