Interpreting Financial Statements

Introduction to Financial Statements

Keeping track of your finances is an important part of small business success. Many business owners make the mistake of looking only at sales and profits. Of course, these are important, but they do not tell the whole story. In this four-part e-learning program, we will show you how to use financial statements to understand and manage your business finances.

Understanding Cash Flow

Cash has often been described as the life blood of a business. Your business may generate profit, but if it does not generate enough cash, you have a problem. Even a business with a high level of sales will not necessarily have the cash needed for its daily operation. In this module, we will explain how the cash flow statement can help you manage the cash you need for your business. We will show you how to analyze a cash flow statement to see where cash comes from in your business and where it goes. Next we will show you how to prepare a cash flow statement. And finally, we will show you how to use a process called aging of accounts to help you identify potential problems with your accounts receivables.

Understanding Financial Statements

The Profit and Loss Statement is one of the most important financial statement used in business. It is often called an Income Statement or an Operating Statement. In this module, you will find out how the Profit and Loss Statement is prepared and what it is used for. You will also learn about the Profit and Loss Statement Summary and the Projected Profit and Loss Statement. Then, you will learn how to use a Balance Sheet to calculate your company's net worth.

Understanding Ratios

Financial ratios are useful tools for evaluating the performance of your business. Ratios can help you to see what areas of your business need attention; identify the strengths and weaknesses in your operations; and assess how well you are managing your business. Ratios can also be used to compare your company to other similar businesses. In addition, some lenders use ratios to assess the risk associated with lending to a particular business. In this module we will look at the two most useful types of ratios – Operating Ratios and Solvency Ratios. We will give you a checklist for analyzing business ratios. Finally, we will give you a chance to apply what you have learned in a hands-on exercise.