A company’s financials are an important part of its future planning apparatus. Most companies prefer to keep their financial under the wraps since, too much exposure can lead to a immature investments decisions on the part of investors not well versed with reading them. Company financials are made up of stock financials and the company’s financial statement both of which need to be kept updated and free from unnecessary meddling.
People who are in charge of the management of a company or its day-to-day affairs should know a few things about these financials. Here are a few things:
A Statement is an Art more than a Science
The fact that these financial statements have to do with the working of the company and it contains a plethora of numbers does not mean it is a work of science. Instead, creating a financial statement is more like a work of art since it contains multiple different estimates and judgments made by the management that are incorporated into the statement. These statements are a work of art because in some cases that may not be exactly as they seem. These statements can have certain omissions on its part to show the company in a better light than it is.
The Numbers Have a Story
The numbers outlined in a company’s financial statement aren’t there just to make sense, they carry a deeper meaning and investors and people managing the company should understand that. The numbers portrayed in the statements are indicators of real events that have affected the business in any which way, both positively and negatively. The numbers represent the realities which should be looked at with the quantitative information to make the most of the situation at hand. The crunching numbers about sales for example also tell the tale of an economic slump that took place in the market.
There is no one mold for the Financial Statement to fit in
What is hard for most company owners to understand is that financial statements don’t all fit in the same mold. Different companies have different people formulating their financial statements and each statement will have a degrees of change from one another in terms of style and substance. There are few “typical” financial statements being used. The diverse nature of businesses has meant that there is a growing change in the scenario which needs to be taken into account instead of fitting all of them in a single mold.
They are scorecards and should be treated as such
There are millions of individuals in the investments world that take a close look at the financial statement created by a business to take their investment decision. Unfortunately, this is the wrong tactic to use. Yes it is an important piece of information to have but a financial statement is more like score card it cannot be used to assess the long term future of the club singularly and any investment decisions based on it can lead to severe financial problems.