Financial Analysis

Written by Patricia Tunstall
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Good accounting procedures and policies should lead to good financial analysis. Of course, bookkeeping is essential; without records, a business is floundering. Beyond bookkeeping, however, lies the complex world of accounting.

An accounting system in a publicly held company should be organized based on generally accepted accounting principles (GAAP). Such a system automatically lends credence to the financial statements and disclosures in the annually-required financial report. It also enables the accountant to produce a reliable financial analysis for the manager and officers of the company.

Financial Reporting

The business manager may need weekly and monthly--even daily--financial advice and analysis from accountants. Several aspects of a business need close attention: inventory control, cash flow, margin per unit. For instance, budgeted cash flow for a specified period needs to be compared to cash flow from profit for the same period. Accounts receivable collections should be examined continuously. In short, the business manager, working with the accountant, must have a credible reporting system in place.

Of course, the most complex financial analysis is reserved for the annual report required by the Securities and Exchange Commission. This federal Commission has jurisdiction and authority over publicly held companies and their financial reports. The report consists of three financial statements: income statement, cash flow statement, and balance sheet. To satisfy the requirement of full disclosure, there is also a disclosures and footnotes section.

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