Understand their accounting documents.
Understanding accounting documents can be difficult and tedious, However, es muy importante que el empresario sepa por lo menos, reconocer los puntos claves que le permiten, de una manera rápida, conocer el estado de su empresa.
The income statement
Also called State of profit and loss, It gives us the performance of our business in a given period of time (usually one year).
The basic formula for the statement of income is:
income – expenses = net profit
A possible format is as follows:
Income
-Variable expenses
= Gross profit result
-Fixed costs
= Operating income (before taxes)
-Income taxes
= Net result
A statement of income is relatively simple to understand, However, It is necessary to bear in mind all the financial aspects of the company and ask questions to understand the information in the.
For example, both the principal of a loan payment or the injection of capital to a business, they do not have or as income or exit respectively, However, payment of interest on a loan, It is a graduation and should be included in the statement of income.
What we have to look at?
A businessman, What should interest you, is to know the behavior of the income statements, as these reveal trends that will allow them to make changes in the management of their businesses.
Gross profitability
Gross profit is the gross profit as a percentage of revenues or sales.
Example:
| Sales revenue (total income) | US $ 1,000,000.00 |
| -Cost of sales (variable expenses) | US $ 300,000.00 |
| Gross result | US $ 700,000.00 |
The gross profit is your gross profit expressed as a percentage of their income from sales:
Gross profit = (Gross result / Sales revenue) x 100
For our example, the gross profit would be:
(700,000/1,000,000) x 100 = 70%
If this gross profitability begins to decrease with time, the entrepreneur must find the causes of this decline and current in consequence. Among the reasons for the decrease in gross profitability we can mention:
- Increase in the cost of inventories.
- Discounts.
- Customers or staff theft.
- Small profit margin of products.
- etc.
Net profitability
The net profit is the net result, expressed as a percentage of revenues by sales.
= Net profit (Net result / Sales revenue) x 100
For example, in a business with total sales of US$ 1,000.000.00 and a net profit of US $ 200,000.00, the net profit would be:
(200,000/1,000,000) x 100 = 20%.
If the net profit falls, This means that you are paying proportionately more in expenses and costs.
Now suppose your sales to grow from $ 1,000,000.00 to US $ 2,000,000.00 and its net result grows from US $ 200,000.00 to US $ 300,000.00. Naked eye, This is all very well, but let's now its net profitability:
(300,000 / 2,000,000) x 100 = 15%
As we can see, Although they increased sales and net result, net profitability fell from the 20% to the 15%. It's time to talk to your accountant and review the reason for this loss to see what is causing it..
The accounting equation
The basic elements of the accounting equation are:
- Active: They are real, rights and values that a company.
- Passive: They are obligations with third parties or debts outstanding of a company.
- Capital: The net book value of the company and is the difference between the assets and liabilities.
The accounting equation is thus written:
Active = passive + Capital
Double-entry accounting system is based on this equation. Understanding it is more difficult than the income statement so, definitely, you will need advice from your accountant.
However, for decision-making, It is not necessary to know all the accounting system, but only, those key indicators that show the State and behavior of your company.
Financial reasons
Financial ratios are key indicators that will show you the health of your business. Although there are many financial reasons, two very important for any company are:
- Return on assets (ROA): It is the net result as percentage of total assets of the company.
- Rendiminetno capital (ROC):which is the net result expressed as a percentage of the company's equity.
ROA = (Net result / Active) x 100
and
ROC = (Net result / Capital) x 100
Example:
| Active | US $ 1,100,000.00 |
| Liabilities | US $ 300,000.00 |
| Equity, or capital | US $ 800,000.00 |
| Result(utility) NET | US $ 200,000.00 |
The ROA will be:
(200,000 / 1,100,000) x 100 = 18.18%
The ROC will be:
(200,000 / 800,000) x 100 = 25%
The above suggests that the performance of capital is greater than the yield on assets. This is so because in reality, What really turns is the heritage (capital), Since, the basic formula of the accounting, We conclude that part of the assets are funded by third parties (passive).
What do say us these financial reasons?
If the percentages of return on capital is very low, the necessary question is: Is there any other I can do with my money and that is more profitable investment? That is to say, is it this business better than, for example, an account in instalments, the stock exchange bonds, shares in other companies, etc.?
As already mentioned, There are many more financial reasons that you can study. Your accountant is the best indicated to tell you which of them are critical to your particular business and so you, You can begin to review them.