Analysis of financial statements and the business plan

The analysis of the budget and the business plan: how they are connected? One of the most important tools to learn about the financial side, the economic and the capital of the company in the short to medium and long-term analysis of the budget. The image we have published to introduce this article speaks for itself: do the analysis of the budget is essential to know the state of health of the company in detail. It is a bit like going to the doctor and do an X-ray to see if there is any problem…


Finance
Credit: Google Image

These analyzes are conducted at the enterprise level can be made ​​at different levels and using various tools. But the starting point is always the same: the financial statements, from which they take the steps all the assessments and considerations that can be done on the management of a company. What changes are the type of tool to use and the level of depth to which you want to get off, depending on the type of information to be obtained from the accounting document?

The analysis of the budget: The starting point

As we have already had occasion to write, these analyzes are made to know the financial aspects, the economic capital and those of the business as these three aspects are closely interconnected. In fact, the management of the company is embodied in a series of stages…

The management company, in its complexity and interconnectedness within the financial aspects, economic and financial, must aim at obtaining three partial balances that together result in general equilibrium: it is of financial balance of economic and of that asset. And what is the task of the analysis of the budget? And exactly to verify the existence of these three balances.

Sometimes we happened to talk to entrepreneurs who showed satisfaction with the economic aspects of your business: sales millionaires reached in two to three years of activity (which is undoubtedly about a business), but with disastrous financial situations from almost every point of view. Not to mention, then, the composition ratios of the capital budget! In fact, all too often the most important aspect of the whole business appears to be the level of sales achieved, as if this were alone sufficient to say that the company is “doing well”. No, unfortunately it is not: the economic balance is not enough! So as not enough research and get the only financial balance sheet or just one.

The analysis of the financial statements: Financial aspect and the financial position

The three management (financial, economic and assets) are three aspects of management that cannot be considered separately as funding sources are used to supply investment which, in turn, serve to feed the production cycle, and then sales of products / services which, in the end, generate revenue. But if the financial situation is not in balance, the company is the difficulty in finding financial resources and therefore cannot make investments and then cannot produce more to sell (and then bill) more, and will thus improve the economic. In short, it would appear to be in front of the classic dog chasing its tail and, indeed, in fact it is so…

Usually, the analysis of the budget takes into consideration precisely these three aspects at the same time and can be conducted at various levels. But, even in this case, all too often the analysis of the budget stops to the usual indicators 5-6 and 3-4 to the usual margins. Which might be enough to understand the situation in principle, but they are not if you want to delve. It is like saying that the doctor noted the plate, saw that something is wrong, but stops at the plate! No, usually also the doctor asks you to make some additional analysis to better understand what is happening…

And when you want to learn a little more, things get complicated: why, for example, if you wanted to know the real financial situation from a dynamic point of view, the indicators provided by the classical analysis of the budget for indexes are not enough but it serves analysis of budget flows. If you want to know a little more about the balance sheet, are not enough the “usual” five indices of composition, but need to enter a little more in the composition of the individual parts of the assets (assets and liabilities) as well as studying the various strategies (such as working capital) implemented by management. And if you want to get to know the economic situation, the ROI, the return on equity, the ROS and the CTO (indices mainly used in some practices), they are not really enough to understand!

This explains the reason why when an entrepreneur comes from a lender (bank, financial, private or state) should include an analysis of the budget in the business plan in depth and in detail: after all, the business plan need to make understand in well as possible from the person you want to do, how you want to do, when and in what time you want to do. And if a party wants to know in detail the most sensitive aspects entire business, I do not think that is asking for the moon…

Leave a Reply

Your email address will not be published. Required fields are marked *