Financials of a company are always complex terms which are not easily understandable. They are the actual report card of a company that represents the performance every year. Sometimes results are good sometimes results are bad. For an individual, it is very essential to under these complex figures because the future growth depends on these current numbers only, just like our marks define our progress. Every year this report card shows different results, sometimes good, bad average, or below average.
Every business faces various situations throughout the year and tries to adopt the changes for its survival. But how a common individual understands this as they only understand what a company shows. For example, a company in its quarterly results declares a growth of 10% but still has a loss in revenue. For an individual, growth attracts but still concerns about the revenue. Which makes it complex for him to understand should he invest in the company or not.
A common person with zero knowledge of analyzing the financial statements only looks at the growth factor.
Nowadays many financial websites are available which helps to make this complexity easier, but still one should look deep into it Because this financial data can be easily manipulated. So, one should look into some common points to check the company’s health just to make sure it is worth putting money into it or not.
One should check the earnings of the company comparing it with its last quarter earnings and then based on year on year, maybe one can find some quarters are good some are bad but on a yearly basis, the company would reflect a true picture. Earnings should be from its main business not from any other operations.
When a person is analyzing earnings, one should monitor the expenses too Because in business expenses are also an important part, If a company is earning more than it’s expenses then that’s a favourable condition, But if even after earnings are improving still expenses are more than it’s not a favourable situation for the company.
A businessman for expansion of his business took some long-term loans just to make availability of funds would go in the flow. And the most important part is that one should manage that ratio in an ideal manner if the debts of the company are constantly rising against its earnings and most of the part of earning are indulge in paying its debt then one should stay away from that kind of companies.
Availability of Cash:
A most important point to check out what a company is doing with its profit, which means are they reinvesting it back into the business which makes a company rich in assets & low in the cash balance, low cash balance shows the business is not sustainable. A company requires a healthy amount of cash balance in its bank if in case anything uncertain happens the company should be in a position to face it.