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Analyzing Your Business Finance

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It is a good idea for business owners to take time to analyze their business finances. Business owners who take the time to do this may be able to find additional ways to make money or may be able to find money that is already there. They can also spot potential financial problems before they get out of hand. But many business owners may not know much about business finance and so they may not know what to look for. This article discusses analyzing a business' finances to help a business owner know what to look at and what to look for when they analyze their business finances.

Analyzing business financial statements

A business owner should look at their business' financial statements when they are analyzing their business finances. Business financial statements include statements such as balance sheets, income statements, statements that state changes in financial positions, and any statements that who changes in the business owner's equity. These financial statements can provide a business owner with information on how their business is doing financially and what they can do to plan for the future of their business.

When a business owner analyzes these financial statements they are able to see any financial trends that the business has. Sometimes there trends are not a good thing and if they are caught early they can save a business before the problem grows out of control. Analyzing these financial statements also allows a business owner to monitor their business' cash flow so that they can identify any needs their business may have early on. And an analysis of financial statements can help a business owner be able to compare their performance with the financial goals and plans they have had for their business.

Analyzing business ratios

Analyzing business rations allow a business owner to analyze financial statements in bigger picture than just viewing a number. Comparing numbers to other numbers gives a business owner a better idea of what is going on with their business' finances over time. There are many different ratios that a business owner can look at and analyze in their business. For example, a business owner can analyze solvency ratios, profitability ratios, efficiency ratios, and liquidity ratios.

Examples of solvency ratios include ratios such as debt to equity, coverage of fixed costs, interest coverage, and debt to assets. Many of the common profitability ratios that a business owner should analyze are return on assets, return on equity, operating profit percentage, net profit margin, and gross profit margin ratios. Fixed asset turnover, ratios for accounts receivable, ratios for inventory, and total asset turnover are all examples of efficiency ratios. And current and quick ratios are liquidity ratios, or working capital.

Analyzing cost/volume/profit

When a business owner analyzes cost/volume/profit, they are analyzing the real cost of them providing the good or service that they provide and the best operation level for their business. Analyzing cost/volume/profit can help a business owner see the relationship that is between their fixed and their variable costs, their volume, and the profits their business makes.

A business owner can get information from this analysis that will tell them how much they need to sell to just break even depending on the different costs and price options. They can also compare the different products, services, or lines they offer to see which is most profitable. And it can help them learn more about operation leverage. This will show them their fixed costs that allow the business to make more money when their sales are up, but also makes them lose more money when their sales go down.

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