What Makes Up a Financial Analysis in Herndon, VA

Business owners use financial analysis to determine the performance, growth, and sustainability of their business. They will review different financial statements, such as balance sheets, income statements, and cash flow statements. To conduct an effective financial business analysis in Herndon, VA, read on to know more about these statements:

Income Statement

This financial statement reports the financial performance of an organization over a certain period and features the profitability of a business. Business owners can use this statement to predict performance and evaluate future cash flow capability. When you review your income statement, you must compute the following analysis ratios:

  • Gross profit margin. This refers to the remaining revenue percentage after the cost of goods sold is deducted. Dividing your company’s gross profit by its revenue from sales will give you this number.
  • Operating profit margin. This refers to the amount of revenue remaining after considering the operating expenses and cost of goods sold. This is derived by dividing operating earnings by revenue. 
  • Net profit margin. This refers to the revenue percentage after deducting all expenses from sales. This shows the amount of profit that can be made from total sales. 
  • Revenue growth. This refers to the growth percentage during a certain period. 
  • Revenue concentration. This shows the clients that are generating the majority of revenue. 
  • Revenue per employee. This measures the productivity of a business and determines how many employees it needs. 

Balance Sheet

This statement reports the assets, shareholder equity, and liabilities of a company at a certain period. In every balance sheet, assets need to be equal to the company’s equity and liabilities. Thus, the dollar amount has to be zeroed out. 

Cash Flow Statement

This reports how much cash has been generated during a certain period. This is meant to offer data on the current liquidity and solvency of a business as well as its ability to alter cash flow as needed in the future. Its components include the following:

  • Cash from operations. This refers to cash flows on business operations, including activities such as sales, production, product delivery, inventory costs, materials purchases, advertising, and customer payments.
  • Cash from investing. This refers to money used to invest in something, expecting gains over a certain period.
  • Cash from financing. This refers to cash obtained from borrowing, used for repaying debt, or obtained from raising money. 

These components highlight the cash sources of a company and how it uses the money. For a lot of investors, the cash flow statement strongly indicates a business’s performance.