What if you could unlock the secrets to your company’s financial success with just a few key documents? That’s exactly the role financial statements play in business management.
As a controller, you understand financial statements’ crucial role in steering a business towards success. They’re the language of business, communicating a company’s financial health to investors, creditors, and management. However, preparing these statements can be a time-consuming and error-prone process, especially when done manually.
In this blog, we will take you through the five essential financial statements every controller needs to be familiar with, along with the pain points of manual preparation.
Let’s take a look.
Income Statement
The income statement, also known as the profit and loss (P&L) statement, is a financial document that summarises revenues, expenses, and profits over a specific period. It is crucial for you to evaluate your company’s profitability and operational efficiency. Therefore, along with management, you need to analyze income statements closely to assess financial performance and make informed decisions about the future.
Components
- Revenues: The total earnings from business operations.
- Expenses: Costs incurred in generating revenue.
- Net Income: The difference between revenues and expenses, which shows whether the company operated at a profit or loss.
The income statement typically covers a period, such as a quarter or fiscal year, offering insights into your company’s financial activities over time.
Analysis for Investors and Management
For investors, the income statement is essential in evaluating whether a company is generating profits and managing costs effectively. Depending on revenue and expense trends, management can use it to identify areas for improvement or expansion.
Types of Revenues and Expenses in the Income Statement
- Operating Revenue: Income from core business activities such as product sales or services.
- Non-Operating Revenue: Earnings from non-primary business activities, such as interest and royalties.
- Other Income: Gains from the sale of assets or investments.
- Primary Expenses: Costs tied directly to producing goods or services, such as cost of goods sold (COGS) and selling, general, and administrative expenses (SG&A).
- Typical Expenses: Ongoing costs, including wages, commissions, and interest paid.
Together, these various types of revenues and expenses provide a comprehensive view of your company’s financial performance, helping stakeholders evaluate profitability and operational efficiency.
Balance Sheet
The balance sheet offers a snapshot of your company’s financial position at a specific time, outlining its assets, liabilities, and shareholders’ equity. It is a vital tool for understanding your company’s financial stability and liquidity.
Components
- Assets: Everything your company owns.
- Liabilities: Everything your company owes.
- Shareholders’ Equity: The net value belonging to shareholders after liabilities are deducted from assets.
Controllers use the balance sheet to gauge a company’s financial strength and ability to meet its short-term and long-term obligations.
Details of Assets in the Balance Sheet
Details of Assets in the Balance Sheet refer to the various resources owned by a company that is expected to provide future economic benefits. Assets are typically classified into current and long-term categories based on how easily they can be converted into cash or used up within a year.
- Liquid Assets: Cash, cash equivalents, and short-term investments are easily converted into cash.
- Accounts Receivable: Payments owed to the business by customers.
- Inventory: Goods available for sale, including raw materials, work-in-progress, and finished goods.
- Prepaid Expenses: Costs paid in advance, such as rent or insurance.
- Capital Assets: Long-term assets such as property, plant, and equipment.
- Intangible Assets: Non-physical assets like trademarks and patents.
These diverse asset categories provide a clear picture of your company’s financial resources, highlighting its liquidity, investment potential, and long-term value creation.
Details of Liabilities in the Balance Sheet
Details of Liabilities in the Balance Sheet refers to the obligations or debts a company owes to external parties. Liabilities represent claims against the company’s assets and are classified based on their due dates, typically into current (short-term) and long-term liabilities.
Here are the key components:
- Accounts Payable: Money the company owes to suppliers for goods or services received but not yet paid for. This is typically short-term debt.
- Wages Payable: Salaries and wages owed to employees for their work performed but not yet paid.
- Notes Payable: Formal written agreements to repay borrowed funds, usually including short-term and long-term debt obligations.
- Long-Term Debt: Financial obligations, such as bonds or loans, which are due more than a year from the balance sheet date.
Each of these liabilities provides insight into the company’s financial commitments, helping investors and management gauge the company’s risk and its ability to maintain financial stability.
Cash Flow Statement
The cash flow statement tracks the flow of cash in and out of the business for a specific time. It helps provide insight into your company’s liquidity, showing whether you can generate enough money to sustain and grow operations.
Sections of the Cash Flow Statement
- Operating Activities: Cash generated from core business operations.
- Investing Activities: Cash spent on or generated from investments, including purchasing or selling assets.
- Financing Activities: Cash related to borrowing, repaying debt, and issuing equity.
Investors and management use the cash flow statement to assess whether the company is generating sufficient cash to cover its obligations and invest in future growth.
Operating Activities in the Cash Flow Statement
Operating activities detail the cash flows generated from a company’s core day-to-day business operations. It highlights changes in working capital, including fluctuations in accounts receivable, inventory levels, and accounts payable, which directly affect cash availability.
Investing Activities in the Cash Flow Statement
Investing activities refer to the cash used for long-term investments and cash you receive from the sale of assets. It encompasses transactions such as purchasing or selling property, equipment, and investments in other companies.
Positive cash flow from investing activities typically indicates that your company is effectively allocating resources to expand operations or acquire strategic assets. In contrast, substantial cash outflows may suggest heavy investment aimed at future growth.
Financing Activities in the Cash Flow Statement
Financing activities provide insights into the cash flows of obtaining funds to support your company’s operations and growth. This includes transactions such as issuing stock, borrowing funds, repaying debt, and paying dividends to shareholders.
Positive cash flow in this area means that your company is successfully raising capital to finance expansion or improve its financial position, whereas negative cash flow might reflect repayments of debt or dividend distributions.
Want to learn more about what controllers do? Click here and find out!
Statement of Retained Earnings
The Statement of Retained Earnings provides a comprehensive summary of the changes in your company’s equity over a specific reporting period, highlighting how profits were either retained for future growth or distributed to shareholders.
This statement is crucial for understanding how much of your company’s earnings are reinvested into the business, contributing to long-term growth, and how much is returned to investors in the form of dividends.
Key Components:
- Sale/Repurchase of Shares: This section shows the impact on equity from issuing new stock or repurchasing shares. Issuing shares increases equity, while stock buybacks reduce it, reflecting strategic financial decisions about capital structure.
- Dividends: Dividends represent the portion of profits distributed to shareholders. This section outlines how much of your company’s earnings are being returned to investors, signaling confidence in financial stability or aligning with a growth strategy.
- Reported Profits/Losses: This component details your company’s net income or loss for the period. Profits boost retained earnings, while losses reduce them, offering a clear picture of the company’s overall financial performance and its ability to generate value.
The Statement of Retained Earnings is a critical tool for stakeholders, as it gives insight into how a company balances rewarding investors with maintaining enough capital to fuel future growth.
Simplify Financial Statement Analysis with Bunker
Bunker simplifies financial statement creation and analysis, giving you the insights to guide your business toward success. Whether you’re reviewing performance or managing cash flow, Bunker provides powerful, intuitive tools that help streamline every aspect of your financial reporting process.
P&L Performance Analysis
Bunker’s Consolidated P&L – Row View lets you assess your Profit & Loss (P&L) performance with ease by comparing it to prior periods. This feature lets you identify trendline movements at a glance, helping you generate insightful commentary to explain variances and spot potential areas of concern or improvement. Whether you’re looking to define a sudden dip in revenue or track growth over time, the row view provides straightforward, actionable insights.
The Consolidated P&L – Columns View is another essential tool, allowing you to analyze performance month-over-month by segment. With this powerful view, you can:
- Pinpoint needle movers impacting overall performance.
- Compare business segments side-by-side, whether by product line, geography, or department.
- Make data-driven decisions by gaining a clear understanding of each segment’s contribution to overall financial health.
Balance Sheet Close and Cash Flow Analysis
Bunker’s AR & Vendor Dashboards are invaluable for analyzing movements in Accounts Receivable (AR) and Accounts Payable (AP) accounts. These dashboards allow you to perform a detailed flux analysis, quickly substantiate material variances, and identify key drivers of changes in working capital. You can confidently explain financial shifts to management and stakeholders with this clarity.
The Cash Flow Dashboard simplifies your cash flow management by helping you:
- Itemize cash flow category movements to see where money is coming in and going out.
- Explain material changes in cash flow, such as large transactions or shifts in revenue streams.
- Bridge the gap between net income and changes in cash, providing a clearer picture of liquidity and financial stability.
P&L Close – COGS and Bank Reconciliation
Bunker’s Month-over-Month (MoM) Dashboard and COGS Trends Feature are designed to help you analyze month-over-month cost of goods sold (COGS) variances. These tools allow you to:
- Compare actuals to budget.
- Assess the impact of product or accounting changes on COGS.
- Present comprehensive financial packages to your FP&A team, highlighting important insights.
The Segment Breakdown and Needle Mover Analysis tools further enhance your ability to:
- Identify drivers of gross margin variances so that you can react quickly to cost changes or shifts in product performance.
- Determine the need for accruals based on actual results, ensuring your financial reporting stays accurate and up-to-date.
Vendor Dashboard and Bank Reconciliation
Bunker’s Vendor Dashboard is an essential tool for reviewing operating expenses (OPEX). It ensures proper allocation of COGS, helping you:
- Spot potential misclassifications that could skew your financial reports.
- Guarantee the accuracy of expense reporting, providing a true reflection of your operational costs.
For bank reconciliations, Bunker’s Cash Flow Dashboard acts as an investigative starting point. With it, you can:
- Identify variances between your general ledger (GL) accounts and bank statements, ensuring that all discrepancies are flagged for review.
- Locate potentially missing transactions, avoiding errors that could affect your cash position.
- Ensure completeness and accuracy of financial records, reducing the risk of mistakes in your reporting.
With Bunker’s tools, you can streamline financial statement analysis and make more informed decisions with confidence. Whether identifying key performance drivers, managing cash flow, or ensuring reconciliation accuracy, Bunker will empower your team to stay on top of every financial detail.
Maximize your efficiency and accuracy with Bunker’s innovative financial tools. Take the next step toward smarter financial reporting—book your demo today!
