The financial department masters the economic lifeline of an enterprise and is one of the enterprise’s most critical departments. Finance is closely related to the operation and development of the enterprise and usually involving in complex settings. Hence, emphasizing the digital evolution of finance has become a more and more ideal solution. This article shows you a comprehensive guide on Financial Reporting and Financial Analysis and illustrates how to use them appropriately. 



What is Financial Reporting?

As the name suggests, financial reporting is a method of compilation and reproduction of crucial financial data in a structured and readable manner. Through appropriate design to cover the financial indicators and KPIs, finance reports are beneficial for people interested in their financial status (such as CFOs, financial managers, investors, etc.).

However, companies operation generates numerous and complicated data every day, beyond traditional manual reporting capacity.

  • Fragmented data and lack of uniform rules, resulting in a large amount of data collection and unable to quickly analyze and display financial data
  • The manual production of reports is not only time-consuming but also unable to meet the requirements of easy-to-understand and beautiful

Therefore, establishing a completed and standardized financial reporting system is an indispensable part of the process of corporate growth. The format of financial reports varies depending on the types and objectives.

Note: These reports and charts templates are pre-built and free. Download and open FineReport to try the demo and templates directly.

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Financial Statements

Financial statements, typically represented by balance sheets, income statements, and cash flow statements, are key components of annual reports. I have written the content and samples of this part in detail. If you are interested in more in-depth content, you can later read Accounting Reports: A Beginner’s Guide.

Balance sheet is an important financial report
Balance sheet

As a result, I just introduced them briefly here to help you understand the financial statements in one minute. 

  • The balance sheet represents a company’s assets and liabilities and shareholders’ equity.
  • An income statement describes the source of a company’s profits.
  • A cash flow statement reports a company’s cash stream and marks the company’s hematopoietic ability.


Internal Financial Reporting

Unlike external reports, internal financial analysis reports are mainly used for management purposes, that is, to inform individuals within the organization of financial information and support designing strategies and making decisions.

Financial statements are basic for reporting internally, but it often turns out to be insufficient. Since not all the staff have a solid knowledge base on accounting and finance to understand the accounting statements. As a result, financial analysts in the organization often need to form more understandable and easy-to-read reports for internal management.



What is Financial Analysis?

The process of financial analysis is also a process of comparison. The general financial analysis methods mainly include:

  • trend analysis(compare on time)
  • ratio analysis(compare on indicators)
  • and factor analysis(compare on factors)

Also, three topics are often put at the center of financial accounting: corporate solvency, operation, and profitability.



Understanding Financial Analysis

You can source most of the information you need from the financial reporting. Here, I list three steps on how to conduct financial statement analysis.

Beyond financial statement analysis, you can conduct variously analyzing economic activities. The underlying idea is to find the differences between goals and actual results by comparing corresponding metrics. By proper comparison, you need to conclude why the program is not completed or over-completed. It makes sense that you have to analyze the reasons for deficiencies to seek improvement and make-ups.

But why you still need to diagnose when the results are over the initial expectations? Well, because the over-performance sometimes is not because of your hard-working. It sounds disappointing, right? Here, the truth is that many factors can merely temporarily enhance the financial number, such as receiving a bonus from the government or selling some assets. These factors are not lasting, so only after excluding them can you see the business’s natural performance.

Also, it’s a recommendable practice to find comparable companies in the industry to see where you are standing and finding a benchmark. The listed companies always publish their annual reports. By comparison with peers, a financial analyst can detect the strengths and shortcomings which may always be meaningful for future enhancement. However, some businesses may find it challenging to find comparables. It often happens in very new sectors or in companies whose business models are relatively innovative.

Lastly, don’t forget to compare the business itself to see how the data changed compared with the previous. When climbing up, financial indicators tend to indicate that the company is experiencing positive growth.

Regardless of the method, the above example tells us that financial analysis should be combined with a business background. Financial information comes from business information, and an excellent financial analysis report must contain business information.



How to write Financial Report & Analysis of a Company



Step 1. Define the Targeted Users.

Who is going to read the analytical reports? You can not bypass the question as its answer define the final content of the reports.

If the financial analysis will go to non-financial professionals, the financial analysis report only needs conclusive key indicators and data. There is no need to list too many financial indicators, and such information can be used as reference materials and stored in your computer. The first is to clarify the economic situation and descriptively provide some advice.

If you are targeting certain professionals, the deliveries will also vary depending on the roles. Auditors, accountants, investors, and other users have diverse expertise and intentions from each to each. For example, when analyzing cash flow, creditors will pay attention to the stability of future cash flow and the capability to cover maturing debt and interest, while early-stage venture capitalists are concerned about funds usage and the speed of consumption and financing report.



Step 2. Identify the Financial KPIs you’re Tracking.

Most of the indicators of financial analysis can be obtained directly or indirectly from the recent financial statements. They include but are not limited to

  • Gross Profit Margin= (Revenue – Cost of Sales) / Revenue * 100
  • Net Profit Margin = Net Profit / Revenue * 100
  • Working Capital = Current Assets – Current Liabilities
  • Current Ratio = Current Assets / Current Liabilities
  • Leverage = Total Assets / Total Equity
  • ……

However, keep in mind that financial analysis is not a simple numerical calculation but an in-depth insight developed through specific logic and methods. Under different scenarios and purposes, financial analysis will inevitably follow appropriate trains of thought. This article provides four ideas for reference.

  1. Comprehensive index analysis: disassemble specific factors according to RO and other index E, and then analyze the reasons for the decline and rise of related factors.
  2. Analysis of financing: trace the source of funds for the company’s operating investment.
  3. Analysis of main assets: Consider the company’s capital flow and operating efficiency.
  4. Profit analysis: measure the company’s operating profit and profit distribution.

Two Practical Tips:

  • You can’t just look at the financial reports for one year. It’s best to look at the financial data for 5-15 years. It is necessary to dynamically probe a company’s business changes to truly understand how the business is conducting.
  • Most financial analysis starts from the report. It draws conclusions through the calculation of various financial indicators, such as excessive debt-to-asset ratio, inferior liquidity, and excessive proportion of fixed assets. But if it is prepared for enterprise managers, then these results are far from enough. You still need to analyze financial performance in combination with specific businesses, management policies, and corporate culture.


Step 3. Data Collection and Report Drawing

The collection and collation of raw data is the basis of financial management. What kind of data is collected and how to ensure the accuracy and availability of the data is also the most important thing. Because financial reporting often analyzes multiple dimensions and complex data sources, financial analysts need more time and energy to deal with them.

After setting the indicators and data sources, drawing reports will not become a challenging task. The main thing you need to consider in this step is what kind of tools to use. Excel is already an old friend of financial professionals that no longer needs to be emphasized.

However, for companies driving to take shape, developing a comprehensive corporate financial platform in the development process is necessary. The ambition behind this is to swiftly and efficiently share finance analytics results with stakeholders in the groups.

It is sometimes tough to establish a financial reporting system if it lacks a decent road path. The following samples made with FineReport provide you with enlightening ideas.

FineReport is a reporting tool tailored for enterprises with specially designed solutions for finance, sales, IoT, etc. Meanwhile, FineReport has also opened a free personal version. Multiple financial report templates are built into the tool. Feel free to download and use.

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Financial Analysis Report Templates & Examples



Dupont Analysis Dashboard

As a classic financial technique, dupont analysis analyzes the enterprise’s financial condition by ROI, which consists of three parts: profit margin, asset turnover, and equity multiplier. 

Dupont analysis is often used in financial reporting
DuPont Analysis(By FineReport)

Click to see the demo and experience the template, and you can drill down to see more financial data about profit, costs, or assets in detail.



Financial Index Analysis 

The financial index analysis dashboard opens a window into company’s comprehensive financial standing. It is popular when it comes to financial planning and analysis.

Financial index reporting
Financial index analysis dashboard >>Click to check more details.


Profit Center 

A profit center is to help you compare and interpret profitability within an organization at first glance.

Profit center report
Profit Center >>Click to check more features


Analysis of Recevable and Payables

Receivables and payables are two essential items in accounting and financial analysis. 

  • Payables refer to the amount of money owed by the business.
  • Receivables, on the opposite, relates to money owed to your company by customers or debtors.

By comparing the receivables and payables, you can manage and forecast future cash movements.

Accounting receivable Dashboard
Analysis of Receivable and Payables


Summary

Financial reporting refers to disclosing key financial indicators to stakeholders inside and outside the company about financial health.

Financial reports’ formats are shaped by the purpose and types diversify. Income statements, balance sheets, cash flow statements have a standard structure. But within the organization, the first objective of financial reporting is to cope with inner management obligations.

There are three steps in writing a financial report and financial analysis. Determining the targeted users of this report is the first thing. Only with a clear purpose in the brain can you recognize their need and arrange fitting content. Collecting and sorting data is time-consuming. FineReport can assist your business in expanding financial analysis reporting platforms and advance in finance digitalization. The personal version is free.

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