Within any company, it is extremely important to have accurate and detailed information about what is happening inside, in order to show society, in its various areas or sectors, how operations and processes are being carried out , as well as everything relevant that can help in making decisions about it. This information is helpful internally because, based on this, shareholders will have a broad view of their current capital, as well as the returns being obtained, and based on this, make informed decisions regarding the future of the company.
A financial report is a compilation of information in which an analyst, using comments, explanations, suggestions, drawings, graphs, etc., makes accessible to their clients the concepts and amounts contained in the financial statements that were the subject of their prior study. The content of this report is presented in a notebook or form, which in turn consists of two covers and an indefinite number of pages where the aforementioned information is structured in various ways to convey specific and necessary details.
Companies cannot proclaim themselves as independent entities; only the analysis of internal financial data is sufficient to forge appropriate and timely interventions on the financial situation and profitability of a business. This analysis can be complemented with timely information regarding the conditions that are maintained within the company, as well as the analysis of the conditions that prevail outside the business, and over which the company has no jurisdiction.
Preparation of the financial report to the business management
The report from the material organizational point of view can adopt the following parts
Report cover
The front outer part of the covers is intended for:
- Company
- Denomination, in the case of a work on the interpretation of financial statements or the corresponding topic in it.
- The date or period to which the financial statements correspond.
Background in the report
This part of the report is where the analysis and research work is based , and is generally intended for the following:
- Details and scope of the work done.
- Brief history of the company, from its inception to the date of the most recent report.
- Brief description of the commercial, financial and legal characteristics of the company.
- Objectives that the elaborated work seeks.
- Signature of those responsible for creating the report.
Financial statements
In this section of the report, all the financial statements that the company has in the previously established period are presented, generally in a synthetic and comparative way, ensuring that the terminology is totally clear, legible and accessible to those who will have the right to the information presented.
Charts in a financial report
Generally, financial reports usually contain a diverse series of graphs that further facilitate the accessibility of the concepts and the amounts shown in the content of the financial statements, it is up to the analyst to decide the necessary number of graphs and the form of these.
Comments, suggestions and conclusions
This is where the report ends and where the various comments made by the analyst responsible for the report are grouped in an orderly, concise, and accessible manner ; likewise, the suggestions and conclusions are made conscientiously and with full knowledge of the facts, and this is where any problems or details presented during the preparation of the report are specified, as well as the final result of this report in comparison with previous reports.
Types of financial reports
Internal Report
Public Limited Companies with Variable Capital , under the responsibility of those who manage them, must present to the annual, quarterly or monthly shareholders' meeting, a financial report that includes at least the following:
- A report from the administrators on the progress of the company in the year, as well as the policies followed by administrators and, failing that, on the main existing projects. A report detailing and explaining the main accounting policies and criteria taken into account, complementing the financial information.
- An income statement that shows, with its proper classification and expression, the results of the company.
The internal report is prepared for administrative purposes, and the company administrator clearly has direct contact with important files, has access to accounting books, and in general, all sources of financial information that the business has are at his free disposal.
The results of their work are more comprehensive because the internal analyst is well informed of the movements and peculiarities that the business may present.
External Report
External analysis , on the other hand, differs because it is conducted outside the company, whether by an investment advisor, a credit analyst, or anyone interested in learning more about a company's performance. This analysis is for external purposes, ensuring that the public has access to accurate information within fifteen days of the company owners' approval.
In an external audit, the auditor often has no contact with the company, and the only reliable information available is what the company chooses to provide. A proper analysis of financial statements requires considerable time, money, and effort.
To create a proper report, it must be presented in a way that captures the reader's attention. Therefore, the report needs to have the following characteristics:
Full report
Presentation of both favorable and unfavorable information.
Logically developed report
The analysis must be divided into stages, marked in an index at the beginning of the document, each one reflecting the development of the following topics in a logical and natural way, the problem and the basis of the solution come first, clearly the conclusions at the end.
The report must be clear and price
The facts must be established very clearly, with their pertinent conclusions and timely and fair recommendations, the solutions must be varied depending on the problem.
Report must be concrete
It refers to the fact that it must not contain material foreign to the problem, and that it must refer to specific cases of the company. Care should be taken to avoid abstractions and generalizations.
Report must be timely
The essential usefulness of a report depends highly on how recent the data obtained is, the information must always be timely, since an untimely report causes a false situation and great problems within the company due to deception and alterations.
It depends on the purpose of the report, the characteristics of this may vary, then some of the most popular.
Extracts for executive purposes
This type of report is made in order to answer the main questions of any executive interested in the company, among the people who may be interested are:
- Shareholders have a very particular interest in constantly evaluating the performance of management. In turn, they are interested in knowing the results during their management, paying special attention to accounting information. Shareholders will have to decide whether to sell their shares or to buy more.
- The Investor advisers will analyze financial information obtained to provide better service to its customers.
- The credit analysts will study the accounting information of the applicants in the report to select those who will be granted credit.
- La Secretary of the Treasury will constantly compare the profits obtained, as detailed in the financial statement, with the global income that is presented in the tax return.
- Unions will review accounting information, emphasizing that the distribution of profits to workers is based on the global income of the tax declaration.
- La Stock Market constantly requires that all corporations whose shares are listed on the Stock Market present truthful information. periodically.
Detailed report for specific purposes
These types of reports are prepared for a specific project or purpose , such as the acquisition of machinery, capital investment, issuance of shares, capital increases, obtaining financing, among others. Therefore, this report must contain:
- A clear vision of the profits to the established period.
- A suggested plan for maintaining a balance between the factors of profit, that is, sales volume, gross margin, and operating expenses.
- Obtain higher profitability than the company currently has, through its Employees, Inventories, Clients and Capital from loans and other sources.
- Profit optimization.
Financial statements based on parameters
These are income statements where specific parameters are taken into consideration; the most frequently used analysis methods are the following:
- Standard reasons
- Comparative states
- Simple reasons
- Percentages
- Funds and cash flows
- Trend
Conclusion
Financial reports are prepared according to their intended users ; these can be internal or external. Internal reports are for the owners and members of the company, from the highest to the lowest levels, who can use them to improve and increase profits and production.
It will then be the one directed to the administration of the company, its main objective being to evaluate the operations of the company, detecting the weak and strong points of it, as well as, based on this, establish corrective measures to those points that affect the operations .
The external character, will be the one required third-party companies such as the Government, potential investors, credit analysts and in short for the general public, which can be used for various purposes to better understand the profits of a company.
