Financial statements can be confusing. All those numbers, ratios, and terms can make your head spin. But it’s important to understand financial statements if you want to make informed decisions about your business. After all, the financial health of your business is one of the most important indicators of its long-term success.
To help you understand financial statements, we have compiled a list of questions you can ask. Asking these questions will give you a better understanding of what the numbers mean and how they can be used to improve your business.
49 Questions to ask about financial statements of the company:
- What is the difference between profit and cash flow?
- Does the company have any long-term debt?
- Does the company have any short-term debt?
- What is the interest rate on the company’s debt?
- What is the maturity date of the company’s debt?
- What are my business’s biggest expenses?
- What is my gross margin?
- What is my net profit margin?
- What is my accounts receivable turnover ratio?
- What is my inventory turnover ratio?
- What is the accounts payable turnover ratio?
- What are my company’s most profitable products or services?
- What are my company’s least profitable products or services?
- How much money do I need to keep in reserve?
- Am I projected to run out of cash in the near future?
- Do I need to take out a loan or raise capital?
- How much did my company spend on advertising last year?
- Was this money well spent?
- How much does it cost to acquire a new customer?
- How much does it cost to keep an existing customer?
- How many new customers have I acquired in the last year?
- How many existing customers did I lose last year?
- How much revenue did the company generate last year?
- How much did the company spend on operating expenses last year?
- What was the company’s profit margin last year?
- How much cash does the company have on hand?
- What opportunities are there to reduce costs without compromising quality or service levels?
- What opportunities are there to increase revenue without compromising profitability?
- What are the company’s main sources of revenue?
- What was the company’s return on equity last year?
- What was the company’s return on assets last year?
- What is the current market value of the company’s shares?
- How many shares does the company have outstanding?
- What are the earnings per share in the last quarter?
- Has the company declared any dividends in recent years?
- If so, how much were they per share, and when were they paid out?
- How much cash did the company spend on capital expenditures last year?
- Does the company have any pending litigation?
- Does the company have any preferred stock?
- How many shares of common stock does the company have outstanding?
- What was the average salary of employees last year?
- How many employees does the company have?
- Is the company’s revenue growing, shrinking, or staying about the same?
- Is the company profitable or unprofitable?
- Does the company have any shareholder’s equity?
- Does the company have any dilutive securities outstanding?
- Does the company have a good credit rating?
- Are there any red flags in the financial statements that investors should be aware of?
- Do you have any questions about the financial statements that we have not covered here?
12 Questions to ask about financial statements:
- What is the purpose of financial statements?
- Who are the users of the financial statements?
- What are the types of financial statements?
- How are the financial statements prepared?
- What information do the financial statements contain?
- How does management use financial statements?
- How do investors use financial statements?
- How do creditors use the financial statements?
- What are some of the limitations of financial statements?
- How can I interpret the income statement?
- How can I interpret the balance sheet?
- How can I interpret the cash flow statement?
Frequently Asked Questions
What is the objective or necessity of preparing financial statements?
The objective of preparing financial statements is to provide an overview of a company’s financial position, performance, and cash flows. This information can be used by management, investors, creditors, and other interested parties to make informed decisions about the company.
How can financial statements help with investment decisions?
Financial statements can help make investment decisions because they provide insight into a company’s financial health. For example, investors can use the statement of cash flows to determine whether a company can generate cash flow and service its debt. The balance sheet can give investors an idea of a company’s liabilities and assets, which can help them make decisions about investing in the company.
What are the two common types of financial statement analysis?
There are two common methods of analyzing financial statements: horizontal and vertical analysis. The horizontal analysis looks at changes in individual financial statement line items over time, while the vertical analysis looks at the relationship between individual financial statement line items and the total amount.
What are the red flags in financial statements?
Red flags in financial statements are items that may indicate potential financial distress or fraud. Common warning signs include large changes in net income, large increases in liabilities or accruals, and discrepancies between amounts reported in the financial statements and information from other sources.
If a company is in financial distress, it may no longer be able to meet its obligations as they become due, which can lead to bankruptcy or liquidation. Fraudulent acts may also lead to bankruptcy, and the perpetrators may be subject to criminal prosecution.
Conclusion
Financial statements can be confusing, but they do not have to be! By asking yourself these questions about your company’s finances, you’ll better understand what the numbers mean and how you can use them to improve your business.
To make informed decisions about your business, it’s important to understand your finances. So do not be afraid to dive in and ask questions!
