Being responsible for the financial management of a company, regardless of its size, is not an easy task. However, it can be simplified when managers have the right reports, provided they are up-to-date and sourced from reliable sources.
This means that your workflows are just as important as the types of reports you use. When you have the right processes in place, it will be quicker and easier to verify the overall health of your organization.
Therefore, it makes perfect sense to have a reliable management system that optimizes your processes and provides complete and functional reports.
But ultimately, what reports does every financial manager need? Keep reading to find out!
Essential reports for financial management
Each company has its own unique characteristics, which means that managers can use different information to evaluate operational and financial performance.
However, there are some "all-purpose" reports that can be used in all organizations, regardless of their size or activity. These are:
Balance Sheet
In practical terms, this report demonstrates the investment (Assets) and financing (Liabilities + Equity) actions and decisions for a given period. Furthermore, in greater detail, it allows for an understanding of the evolution and characteristics of these decisions, such as how the company distributed investments (assets), how these investments were financed, whether through third-party capital (Liabilities) or equity (Equity).
Based on this information, the financial manager can obtain several indicators that allow them to assess the company's financial health. Among them, it is worth mentioning:
- Liquidity ratios (current liquidity, quick ratio, cash ratio);
- Debt ratios (overall debt, debt composition, share of third-party capital, fixed assets to equity ratio, etc.);
- Operational indicators (inventory turnover, average inventory age, average collection period, average payment period).
These indicators, among others, in addition to providing an assessment of the company's current health, help managers to develop future strategies and plans, correct mistakes, etc.
Furthermore, they offer metrics that are of great interest to investors or even banks, in the case of loan and financing agreements.
Statement of Income for the Year (DRE)
This essential report for sound financial management provides an overview of income and expenses over a specific period.
Typically presented annually or quarterly, it allows companies to understand the origins of profits, profitability, margin evolution, identify trends, and adjustment points.
Like the balance sheet, the income statement allows managers to evaluate important financial and operational indicators, such as:
- Net profit margin;
- Fixed costs;
- Variable costs;
- Break-even point
- Interest coverage ratio.
This information allows managers to assess the current situation, compare it with previous periods, and make adjustments to guide the outcome.
Cash Flow Statement (CFS)
This is undoubtedly one of the most important reports for financial management. It details the cash inflows and outflows for a specific period.
Divided into operating activities, investing activities, and financing activities, this report demonstrates the business's ability to operate in the short and long term.
No matter how successful your company is – if your cash flow If the business is not solid, with efficient working capital management, its perpetuity may be compromised.
Therefore, managers should monitor their cash flow reports closely and frequently so they can identify areas of the company that are thriving and which ones need adjustments.
Sometimes this might mean shortening accounts receivable due dates so you have money coming in more regularly, or cutting expenses to prevent money from going out too soon before your paychecks return.
Budget (monitoring planned vs. actual)
Setting an annual budget is a basic requirement for all businesses. However, it often happens that actual expenses deviate from what was planned.
Therefore, a "budgeted versus actual" report is of paramount importance so that managers can ensure the company stays on track.
The objective of this report is to compare the actual results of all the statements mentioned above with the expected values at the beginning of each month.
In this way, managers can determine how well a company's expenses and revenue generation match the estimates mentioned in the budget. This makes it possible not only to assess the variations but also to identify their causes.
Read also | How geopolitical events impact the economy and corporate budget planning.
Conclusion
Now you know four essential reports for simplified financial management.
When analyzed together, they provide a holistic view of your organization's financial health.
These reports can also be used to learn from past failures and successes as you develop strategies for the future.
However, as already highlighted, in addition to having these reports, it is essential to have adequate workflows and processes in place to ensure speed, constant updating, and integrity of information.
In this sense, having a quality ERP system makes all the difference, as it optimizes processes and provides reports automatically, always up-to-date and with reliable information sources.
This is the case with Oracle NetSuite, the number 1 enterprise software solution. Cloud ERP and recognized by Gartner, for four consecutive years, as Leader in Gartner's Magic Quadrant for Cloud Core Financial Management Suites.
With it, you can automatically extract balance sheets, income statements, and cash flow statements using native or third-party resources.
Furthermore, you can track the evolution of your budget in real time within the system itself, which optimizes your analysis time and ensures greater agility in identifying deviations and their causes.
Want to learn more about NetSuite? Contact us And speak to an Active specialist.
