Many business owners just starting their business don't know how to read
financial statements. Your business might not be operating for long, however,
if you don't learn to read and use the profit & loss statement and
These financial statements are useful in many ways. For example, a profit
& loss statement that compares the current year's income and expenses
to those of the previous year will indicate if your management decisions are
helping to increase or decrease profits. The balance sheet gives you a view of
your overall financial health, and is an indication of whether it is improving
A banker can look at these financial statements and predict how long he or
she expects you to stay in business. The profit & loss statement tells the
bank if you are running a profitable business. The balance sheet tells the bank
about your financial stability.
Generally what you want to see on a profit & loss statement is growth in
revenue and net income. In order to increase net income or profit margin, some
companies choose not to grow, choose to cut back on less profitable jobs or a
certain type of work, or choose to not sell less profitable types of products.
Even if you have selected no growth, slow growth, or less revenue this year
versus last year, you still need to review your profit & loss statement to
make sure that you are making money and not overspending on job or overhead
Year after year on the balance sheet, you should be looking for higher
assets, lower liabilities, or a proportional growth in assets over liabilities.
For example, if you purchased a piece of equipment this year for $30,000 and
acquired a loan for $20,000, your assets have increased $30,000 and your
liabilities have increased $20,000. A common rule of thumb is that the value of
your assets should equal at least two times the value of your liabilities. So
if you have $150,000 in assets, for example, you should have $75,000 or less in
To do this task
Go to the Reports menu and click Reports Center. Company & Financial reports display.
Click the report you need from the list of reports.
You can use the Report Center to browse through samples or descriptions of the reports.