How to evaluate the company’s financial statements? Find it out!

From the data generated through the financial statements, managers will be able to base business decisions, aiming to mitigate problems and optimize processes.

Good financial management of the company is essential to keep the business running. One of the most important activities of this management is the analysis of the financial statements, which are documents that help manage the company’s investments and expenses.

Thus, it is necessary to prepare and evaluate reports to improve the organization of finances. From the data generated, managers will be able to base business decisions, aiming to mitigate problems and optimize processes.

Want to know more about it? In this content, you will understand what financial statements are and how to analyze them.


What are financial statements?

Financial statements are accounting documents and reports made by companies . Their objective is to assess taxes, analyze cash flow, monitor losses and profits and control the inflow and outflow of capital.

All this financial information is fundamental for making business decisions. By knowing them, leaders and managers can optimize processes, solve problems and guide teams, for example.

What are the main types of financial statements?

Now that you know what financial statements are, it’s time to understand what their main types are. Thus, it is possible to verify which ones meet the needs of the business, which can help management.

See below!

balance sheet

Its focus is equity analysis, which shows the financial position of the company. It has two sections, which are as follows:

●       Assets: are the rights, assets and other applications of resources controlled by the business with the potential to generate profits;

●       Liabilities: are all obligations assumed with third parties that require assets for settlement.

Income Statement for the Year (DRE)

Another important report is the Statement of Income for the Year (DRE), as it can impact strategic decision-making in a company. It brings together all the company’s revenue information, losses and profits for each operation.

In general, the Income Statement is presented every year with vertical and summarized results on the financial operations carried out in the last 12 months.

Cash flow statement

A company’s financial inflow and outflow say a lot about its processes. By knowing how much the company earned and spent in a given period, it is possible to understand more about its financial health.

In addition to this information, the cash flow statement shows the origin of the resources and where they were directed. Consequently, managers can use this data to define future decisions.

explanatory notes

The explanatory notes consist of documents that present additional data from the business’ financial statements. Its main functions are:

  • ● Indicate investments made in other companies;
  • ● Inform long-term obligations;
  • ● Present the accounting methodologies used;
  • ● Demonstrate adjustments from previous exercises.

What is the importance of analyzing this data in the business?

After knowing the main financial statements, it is worth knowing that they contribute to the prosperity of the business. In general, each type helps in different situations – and it is through these documents that the company can make safer decisions regarding money.

In addition, with the financial statements the company can increase the chances of accessing a line of credit, for example. As they present in detail the company’s resources and assets, it is easier to assess whether it is possible to afford business financing.

Also, when analyzing this data, you come to understand how the company’s financial situation is at the current moment. This knowledge is very important to avoid financial losses, as it becomes feasible to take action to solve the problem.

It is also worth remembering that the financial statements are allied to the correct payment of taxes and duties, as in relation to the Income Tax declaration. In this sense, accounting reports help fill in the necessary information more accurately, ensuring the regularity of the business.

How to analyze the financial statements in the company?

Having all the data on the company’s financial statement is not enough to prevent and solve problems in managing the business’s finances. In practice, it is essential to have strategies to perform a good analysis.

Check out some tips for performing this analysis!

Gather all the collected data

The first step consists of gathering the data collected in the statements and checking the structuring. With this, you can find out if they are in compliance with current legislation. The company needs to rely on the following regulations:

● Fundamental Accounting Principles ;

● Income Tax Regulation;

● Corporate Law;

● Accounting Standards

prepare the data

Then you need to prepare the data. In this phase, the company verifies what does not comply with these standards and makes adjustments to proceed with its analysis.

At this point, the data is processed and calculations must be made to find the ratios of the financial statements. From these analyses, you have an overview of the business and can make a comparison with the market or adopt other measures to support the assessments.

identify trends

The statements make it possible to identify how the company should behave in the coming periods, according to the trends presented in the reports. Then, take advantage of the panorama to make decisions about changes, cuts and investments, considering the financial health of the business.

The analysis may also involve making projections with a view to improving business performance. From this process, it is easier to know what to expect, anticipating risks and opportunities.

Use more than one demo type

Using more than one type of financial statement gives you a complete picture of the company’s economic situation. In this way, it is possible to ensure compliance with all obligations and the assessment of various aspects — which helps in decision-making.

In this sense, the company can resort to statements referring to different periods or even different types of data. With more data, management will have a more robust view of the scenario.