The analysis of annual accounts is the most important work for a company director. Why analyse annual accounts? The answer is simple: this analysis makes it possible to carry out a precise diagnosis of the financial situation of a company. This diagnosis is especially necessary for those who wish to buy out an existing company. But how do you go about it?
The basics: Studying the income statement
The income statement is one of the essential elements for analysing annual accounts. The performance of a company over the past financial year is indeed visible through the income statement. This means that budget gaps, profits and deficits are represented by the income statement. In a simplified way: the income statement represents all income and expenses for the financial year. Specialists in the field say that a relevant analysis of the annual accounts starts with the profit and loss account. Some important items in the income statement are: personnel expenses, company turnover, purchases and external expenses, as well as the financial result and the net result, or the operating result. These important items are considered to be major pillars of business management.
Understanding and analysing the balance sheet
By definition, the balance sheet represents a company’s assets and liabilities. In other words, the balance sheet is the sacrosanct book in business management. Please note that the relevant balance sheet items depend mainly on the business activity of the company concerned. Generally, the balance sheet should contain: equity, fixed assets, receivables and payables, inventory value, and cash. But how do you analyze the balance sheet? Analysing a company’s balance sheet is not limited to looking at a single item on the balance sheet in question. It is imperative to check and understand all its components.
Analysing the accounting annex: the key
Analyzing annual accounts also means analyzing a company’s financial statements. An appendix that contains all the information needed to complete and comment on the information that must be included in the balance sheet. This information will also appear in the income statement. On the other hand, companies that are exempt from the appendix are obliged to provide information following the balance sheet. However, the content of the notes depends solely on the size of the enterprise. The accounting notes must be included in the notes to the accounts: The maturity statement of receivables and payables at the end of the financial year, the financial commitment, other transactions not included in the balance sheet, movements in fixed assets.