Indicators in Making Simple Financial Reports

Financial reports may be a time-consuming and high-precision affair. Some people may submit their financial statements to others because they are considered too complex. In fact, making simple financial reports can be done.

Steps to Make Financial Reports

Here are the steps.

Working capital requirements

Working capital requirements include the resources needed to finance the company’s operating cycle.

The formula for working capital requirements is as follows.

Working capital requirements = current assets (inventory + accounts receivable) – current liabilities (trade payables + tax payables + social debt).

Working capital needs can be made effective by taking into account three strategic needs, namely the time out of stock, customers, and suppliers. Evaluation needs to be done to find out what actions you can take in the future.

Working capital

Working capital will determine whether the company’s financial base is balanced, that is, if fixed assets are financed by stable resources. Working capital is a financial reserve that will allow the company to finance operations every time.

The formula for working capital is as follows.

Working capital = permanent capital (equity + loan) – fixed assets (equipment, buildings, etc.).

If working capital is negative, it means that financial reserves are insufficient. It can be said that the company is undercapitalized. You can increase your capital and equity.

Break Even Point (BEP)

The BEP or break-even point is the threshold at which your income will cover your fixed costs. The break-even point can be monthly, or even daily.

The formula for the break-even point is as follows.

Break-even point = fixed costs / [(turnover excluding taxes – variable costs) / turnover excluding taxes) x 100]

Return on Investment (ROI)

Return on investment (ROI) is the ratio of net profit to costs. This ratio will show the result of total assets regarding management efficiency. ROI is usually measured by a percentage.

ROI serves to determine the value of an investment. The process of calculating it will involve dividing the annual income or profit by the amount of investment. Companies calculate ROI to measure the success of a company.

The formula for ROI is as follows.

ROI = (investment income – Investment cost) / Investment cost x 100%

Gross margin

Gross margin is intended to cover fixed costs and operating costs. The level of margin depends on the activity and position of the company.

The formula for gross margin is as follows.

Gross margin = selling price excluding tax – cost price* (buying price excluding tax in case of trading)

The gross margin level should be set annually and it is important to monitor the level regularly to ensure that there are no deviations or excessive rebates.

This is information about 5 indicators for making simple financial reports. You can try to start completing your financial statements with these instruments.

Financial report indicators

The indicators of the company’s financial statements are as follows:

As scorecards (Scorecards)

When you decide to invest in any field, pay attention to the score record or financial report and the score in the currency obtained. Because doing business is not just prioritizing profit but the score that must be obtained, namely assets, cash flow, and investment returns. To get accurate, quality information by looking at a solid balance sheet, good profits, and positive cash flow. Emphasized for investors to learn more in the world of financial statements and see opportunities from the trend of economic conditions in each year experiencing changes such as; industry and competitive considerations, market forces, technological changes, and the quality of management and workforce are not directly reflected in the company’s financial statements, so it can minimize bankruptcies due to errors in choosing an industry. For the industry is expected to be transparent, accurate, correct in issuing a financial report so that the value of the company can be assessed properly.

Benefits of financial statements

This financial report becomes a very important information medium for investors in assessing whether the company can be declared healthy or not, meaning that it is healthy here regarding the overall condition of the company. Generally, investors in analyzing investment value are balance sheet, income statement, cash flow statement, shareholders’ equity, for retained earnings this is rarely used.

Understand each number in the financial statements

Try to understand in more detail the meaning of each number in the financial statements, for each number written describes the company’s real condition, these numbers become a reference for investors in analyzing it is hoped that these financial indicators can facilitate investment analysis. The position of the company’s financial statements recorded in the financial statements can be influenced by one of them by management’s estimates and assessments.

Two important accounting conventions

The recording of financial statements uses generally accepted accounting principles based on generally accepted accounting principles (GAAP). Based on the basic concepts of accounting in general, investors are expected to understand at least two accounting concepts, namely historical cost and accounting. According to GAAP, assets can be properly valued by looking at their purchase price (historical cost) that differs significantly from the current market price. Revenue can be recorded when goods or services are received and expenses are recorded accordingly. This opinion is not accurate based on the actual receipt and disbursement of cash, so how to understand the cash flow statement is very important.

Financial Ratios and Indicators

Unlimited numbers in financial statements are of little value for analyzing investments. These figures must be changed in order to assess the performance and financial condition of the company. The types of ratios and indicators produced must be looked at in the long term in order to reflect the trend. It is known that financial valuation measures differ greatly in industry, size and stage of development of companies.

Notes to Financial Statements (CALK)

The figures in the financial statements have not been able to reflect all the standards for transparency demands that are required by the authorities. An in-depth understanding of the notes to the financial statements is most important to properly evaluate the company’s financial condition and performance. Senior investors who know well about investing only consider investing in companies using audited financial statements as required in all publicly traded companies. There are two opinions of the auditor on the financial statements, namely if the opinion is clean, the financial statements are considered valid, correct and in accordance with accounting standards. However, if the opinion is an exception to the financial statements, it means that there is a problem in the company’s finances. Performance indicators that make up process performance (performance indicators) are indicators that calculate the course of a process or action that supports the organization in achieving success.