As a manager and decision-maker, you need to be on top of what is going on when it comes to the financial performance of your business.
One of the things you need to do is knowing how to read financial reports/statements.
You have budgets to meet and your Finance department will send you financial reports but you have no idea where to start and what to look out for.
The first step is to spot the 10 numbers and know what it stands for – you do not need to go straight into the detail as you may get lost and not see the bigger picture.
The second step is to ask yourself if the number is good or bad? Were they up or down or flat compared to last year / last month / last quarter / this time last year?
So what are the numbers you should be looking at?
- Net Revenue: How much did you invoice your customers after giving away discounts and taking into account credit notes?
- Costs of Sales: The total amount of money it cost you to deliver your goods and/ or services to consumers.
- Gross profit: How much profit did you make before paying for your expenses or overheads?
- Operating costs: What were the overheads of your business? How much did it cost you to run the daily affairs of the business?
- Operating profit: How much profit did you make after paying for your overheads?
- Other income: How much income did you make that is not core to your business?
- Other expenses: How much expenses did you incur that is not core to your business?
- Interest paid: How much interest did your business pay from external borrowings?
- Interest received: How much interest did you make from your investments/surplus cash?
- Net profit: How much profit did you make after providing for taxation and expenses?