Importance of financial statement analysis for business decision making

Written by:Diomer Antonio Galán Rincón.
Bachelor's Degree.Public Accounting / MSc.Science of Higher Education.

Introduction

In organizations it is always essential for those who perform management tasks within them, to perform a good management, in addition to working efficiently, allowing the development of this and therefore the good use of the resources allocated by the owners for its operation, in this regard, it is essential to assess the situation, economic and financial performance of a company, in order to detect difficulties and apply appropriate corrective adjustments to solve them.

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To be able to evaluate these situations, it is necessary to have a good knowledge of the existing financial principles and tools such as financial analysis, which according to Rivera (2015) are the documents that the company must prepare at the end of the accounting period, in order to know the real financial situation and the economic results obtained in the activities of its organization throughout an economic and accounting period, through the use of financial indicators, tools that are of great help in the process of analysis and interpretation.

Financial analysis is about separating the important or significant from all the information available, while interpretation is about discovering the strengths or weaknesses in order to facilitate appropriate decision making for the company.

In the process of analyzing financial statements, technical and analytical tools are used to generate important measures and relationships for decision making and economic growth, with the purpose of evaluating the current and past financial situation of the company, as well as the results of its operations and to determine relevant information, to interpret it and establish conclusions through the use of financial indicators such as liquidity, indebtedness, activity and leverage.

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We can also say that through this analysis it is possible to predict future financing needs and the entity's capacity to meet them; it is also useful to evaluate the possibility of distributing resources among those who have an interest in the entity. The information related to liquidity and solvency is useful to determine the entity's ability to meet its financial commitments at their maturity date.

Importance of Financial Statements

Financial statements are important because:

- They provide their users with useful information for decision making.

- They present the actual situation of the company on a given date and the results of its operations for a given period.

- They are the main tool available to study the company financially.

- Financial Statements are extremely important reports that are presented to executives and the public, in general, so that they have a true and concise knowledge of the productivity and financial situation of the company or business.

- Financial statements are important because through them the management or administration reports on its responsibility for the organizations placed under its direction.

Conclusion:

Whoever is not aware of how his organization is doing in any given aspect and period, with relevance in the economic one, will lead the way to fail in its administrative and accounting management, generating in the worst case the bankruptcy of the company and its subsequent closure.

I hope you like my article and I would appreciate all your comments.

Bibliographical Reference:

1.-Catacora, F. (2003). Contabilidad. Caracas - Venezuela. Editorial McGraw Hill.

2-Chillida, C. (2009). Analysis and interpretation of balance sheets. Caracas. Universidad Central de Venezuela. Venezuela.

3.-Rivera, G. (2015) ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS OF THE COMPANY. Catholic University of Cuenca. Ecuador.

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