How to Spot Trouble in a Financial Statement

Posted by Anonymous , 9/4/2007 Tags:SpotTroubleFinancialStatement
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How to Spot Trouble in a Financial Statement

Introduction

One of the best ways to get an idea of your company's stability is through a financial statement. Such an evaluation helps you gain a good picture of where the future of your company lies and on what financial grounds it stands. There are simple mathematical calculations that can help you spot problems in a financial statement.

Instructions

Difficulty: Moderately Challenging

Steps

1

Step One

Compare the company's current quarterly sales figures to a five-year sales plan. If recent sales don't come equal to expected projections, then it signals trouble in the financial statement.
2

Step Two

Calculate the difference between the cash flow and input. Maintain the balance sheet periodically to determine the extent of incoming cash. A decrease in the net income generated shows trouble with the finances.
3

Step Three

Review the income margin from company's operations and sales. Any downfall in margin indicates trouble with the financial statement. Estimate the difference in a day's sale to a month's sale. Low values show low finances.
4

Step Four

Determine the difference in the company's assets and liabilities. The ratio should always be 2 to1. Any increase in the liabilities section is a sure sign of a problem for any company.
5

Step Five

Look at the company's debts and related payments in relation to the profit obtained. A decrease in ratio towards the income generated indicates trouble spot.

Tips & Warnings

  • Always show off good statistics in your quarterly reports despite any downfall, as these can help increase business.
  • Never take any small deficit in business lightly. This can lead to bigger problems in the financial statement later on.
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