Financial statements and its complete analysis cannot be neglected at any stage of the business. A business owner can never succeed without clearly formulating these reports and then comprehending them to meet the company needs. A person involved in any business can be compared to the captain of a ship. In order to know the right directions in a voyage, this captain seeks help from the given map. Financial statements are simply these maps guiding the business owners to attain success and avoid any future loss.
Financial losses can act as a great set back to the company and lead to its ultimate downfall. These financial statements are essential for a company’s growth and their formulation should be by no means misunderstood as a waste of time.
For medium and small sized enterprises, a thorough understanding of these financial statements is quite necessary. The precise explanation of the financial position leads to accurate assessment of your business performance, identifying all possible short comings and allowing yourself to make decisions that boost the company’s profitability. The critical importance of financial management is due to the higher risk of insolvency in SMEs as compared to large corporations.
There are three most basic financial statements that describe the health of the SMEs and their performance over a certain time. These include the Balance sheet, Income statements and statement of Cash flows.
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