Financial statements provide financial data that is used by both investors and financial analysts to analyse the performance of a company and make accurate predictions for the future of the company’s stock price.
An annual report is a packet that contains all of the financial statements of the company for that year. The information is audited and made public so that market analysts, investors, and creditors alike can evaluate the company’s financial health and earning potential.
A financial statement is a report that showcases the financial activity of a company’s year in review. It is used to check on the financial stability and growth of a company.
Although it can be used to reflect any length of time, the more commonly used timelines are a year, a month, or a quarter.
There are different types of financial statements, such as a balance sheet, a profit and loss statement, a cash flow statement, and a statement of owner’s equity.
Financial statements exist to provide sufficient financial information to investors, but also to government and private sectors who need to know whether or not a business is worthwhile to invest in.
In the case of a Business Visa, it is a requirement to showcase accurate and up-to-date financial statements as proof of financial capacity to invest.
The balance sheet provides an overview of a company’s assets, liabilities, and equity at a single point in time. The top of the balance sheet is dated showing the end of the reporting period.
It is called a balance sheet as both sides of the sheet need to be equal for the reported period. One balances a sheet properly using the following formula:
Assets = Equity + Liabilities
An income statement differs from a balance sheet as it covers a period of time; this can be a year for annual financial statements, or a quarter for quarterly financial statements.
The statement provides all the income received from that period and includes revenues, expenses, net income, and earnings per share.
A cash flow statement is used to show how well a company deals with its debtors and fund its operating expenses and investments.
Essentially, a cash flow statement helps investors know where a company’s money is coming from, and where it’s going. It also complements both the balance sheet and the income statement.
There are 5 main types of financial ratios that a business should track. These are liquidity ratios, leverage ratios, efficiency ratios, profitability ratios, and market share ratios.
All 5 ratios are vital for assessing how a business generates revenue and profits with its assets and expenses in a given period.
There are several different documents a business can use to provide proof of funds. The most common are bank statements, investment account statements, and letters issued from financial institutions confirming the availability of funds.
It’s incredibly important to have such documents in general, but especially when investing, as no business or private sector will accept capital investment without it.
Financial statements provide the means for stakeholders to make decisions about the financial health of the business but can also provide an unbiased view to lending institutions. This is incredibly helpful for making lending decisions, especially when the government is involved.
The growth of a business is determined by a timely and accurate analysis of financial statements. Evaluating long-term debt on a balance sheet is how one can accurately measure the long-term prospects of a business.
Independent Verification and Validation are incredibly important to a stakeholder’s trust in a business, and of course to the business’s well-being as well. It provides stakeholders assurance that there is discipline towards the management of portfolios.
Having audits not only protects a company against conflicts of interest but also the shareholders from possible fraudulent financial claims made by the public.
An audit report submitted by an auditor or accountant is considered a qualified report document only when an auditor has expressed such an opinion within the report.
An auditor is responsible for performing an audit to obtain equitable assurance about whether a business’s financial statements are free of fraudulent statements.
As such, approaching a qualified and reputable auditor or accountant is vital to ensuring a quality audit report for your business’s financials.
It cannot be overstated the importance of providing financial reports of a business’s dealings, and one needs to ensure that these report documents are consistently up-to-date and accurate. If they’re not up-to-date, making informed forecasts on trends, and decisions on company growth becomes impossible.
Accuracy can be obtained simply by hiring external auditors to do the job for you, but there needs to be a sufficient follow-up process as well to ensure no errors have slipped through.
A paper trail, or collection of source documents, is a necessary inclusion for Business Visa applications as it allows for audits to be properly validated against recorded financial transactions. The more proof there is of money going in and out of a business, the better for your business in the long run.
The most common types include checks, invoices, receipts, credit memos, and purchase orders.
Regardless of whether your business is a start-up or a recognised enterprise, there are options and strategies for producing valid financial statements for a Business Visa application.
Historical financial data that comes from income statements and statements of cash flows are important, but if you don’t have that, you can easily rely on monthly or quarterly projected forecasts in the form of balance sheets and capital expenditure budgets.
Curating historical financial data over several years can assist a company greatly in highlighting financial performance and growth. A cash flow statement showcases the changes over time, as opposed to amounts at a point in time.
The bottom line of a cash flow statement shows the net increase or decrease over that period and allows for the analysis of a company’s trends and performance.
Engaging with business consultants and accountants is an important step to make in a Business Visa application process. Consultants help companies increase growth and revenue and overcome any challenges that may arise during the process.
It is also essential that a company finds a consultant that is relevant to that company’s field, or that has success in the relevant sector.
There are a number of key metrics and performance measures that financial managers should monitor, known as key performance indicators (KPIs). They fall under a variety of categories, namely profitability, liquidity, solvency, efficiency, and valuation.
Gross profit margin and net profit margin are among some of the most important, but there are many more such as current ratio, quick ratio, debt-to-equity ratio, and more.
What is important to note is that KPIs are seasonal, and as such aren’t good or bad. They are used to compare to previous years and see whether or not your company is improving.
If a company earns revenue in a foreign country, it is required to convert that revenue into its local currency in its time-ended financial statements.
This is important not just for clarity and accuracy, but also for the effects of exchange differences for tax.
It’s important for a company’s financial health to understand the basics of financial statements. Investors can use these reports to better evaluate a company’s performance over a period of time, and make more informed financial and investment decisions.
Having accurate and up-to-date financial statements also plays a vital role in maintaining a level of trust between the company and any investors or third parties.
Written by Simon Carletti, PR and Creative Supervisor