October 12, 2022
Explainer

How businesses can leverage financial reports for deep business insights

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Whether you’re a small business owner or the CEO of a multinational enterprise, proper financial reporting is crucial to your business. It allows you to communicate the success of your business to investors while pinpointing inefficiencies that could be cutting into your bottom line.

In this article, we’ll detail exactly what financial reporting is and what statements fall into this category. Remember: accurate reporting can make or break your businesses bottom line, so ensuring that you’re putting enough resources into robust reporting is key. 

What Is financial reporting?

Financial reporting is a means for you to communicate your financial information to investors, regulatory agencies, and even the Internal Revenue Service (IRS). There are typically two timeframes for releasing financial reports:

  1. Quarterly reports: Most large businesses produce financial reports each quarter, including publicly traded companies.
  2. Annual reports: Even small businesses produce annual reports to track their performance and calculate taxes for the fiscal year.

Most, but not all, financial reporting follows generally accepted accounting principles (GAAP). These principles, governed by the Financial Accounting Standards Board (FASB), ensure quality financial reporting practices.

Financial reporting aims to:

  • Track cash flow: Cash flow statements let you and investors see how cash flows into and out of your business.
  • Evaluate assets & liabilities: Your business owns assets, each with a value. It also likely owes money, whether that’s in terms of loans, accounts payable, or any other liability. Financial reports help you—and investors you may have—compare what your company owes to what it owns.
  • Analyze shareholder equity: Every shareholder has a stake in the game, and shareholder equity shows the value of that stake.
  • Measure profitability: The primary goal of any business is to build and increase profitability. Financial reports show you just how profitable your company or a company you’re considering investing in is.

What financial reporting can and cannot do 

Financial reporting is a valuable tool that can help you understand your business while attracting investors. However, there are limitations to what these reports can do.

Accurate financial statements can…

  • Analyze your financial position: It is always a good idea to know where your company stands financially. You can use various metrics and ratios to analyze your financial standing.
  • Attract investors: The Securities and Exchange Commission (SEC) requires publicly traded companies to make quarterly and annual reports available to their investors. Investors use these reports to assess financial stability and fair market valuations for investment decision-making.
  • Improve financial performance: You can use the data in your financial reports to find and optimize inefficiencies. For example, if you see that you are buying too much inventory, you can increase profitability by cutting down on inventory expenditures.
  • Meet regulatory requirements: The IRS and SEC have multiple financial reporting requirements. These requirements become more significant when your company grows to the publicly traded stage.

But financial statements cannot…

  • Give you insights into several years of performance: Financial statements only cover a specific period, generally one quarter or one year. So, if looking over three or five years, you will have to look through several financial statements to get the complete picture.
  • Give you all financial data: These statements don’t always show all financial data. Some granular data, like the expense tracking data from Ramp, isn’t available on traditional financial statements.
  • Surface insights into non-financial hurdles: Financial statements don’t cover non-financial problems your company may face. You’ll need to do a more fundamental analysis of your processes and procedures to optimize your entire business.

Financial reporting vs. accounting

Accounting is the gathering and producing of all financial data for the business. Financial reporting summarizes this data and makes it available to investors, founders, and regulatory agencies in an easy-to-digest way.

Types of financial reports

There are several different types of financial reports you can build for your business, and the best way to do so is with Ramp. Here are some of the most vital summaries you can generate and how Ramp can make your financial reporting easier:

Balance sheet

Your balance sheet is a document that outlines your company’s liquidity by providing three key stats:

  • What your business owes: This column includes any business liabilities, including accounts payable, debt payments, and any other money it owes.
  • What your business owns: This column includes all assets your business holds.
  • Your investments: This column includes the value of investments and any retained earnings.

Here’s more information on how to create a balance sheet.

Income statement

An income statement is a document that starts by showing your gross revenue. This document has line items that subtract the cost of goods sold (COGS), expenses, and taxes. Your net income summary is at the end of the income statement.

This document gives you crucial information about your business, including whether or not it’s profitable and how profitable it is, so it’s wise to learn how to prepare an income statement as soon as possible.

Cash flow statement

A cash flow statement, also commonly called the statement of cash flows, is a document that shows you and your investors how cash is flowing through the business. Like the income statement, it shows cash increases or decreases over time. It also allows you to dive into cash-only and cash-equivalent data, erasing the noise of costs like depreciation.

Shareholder equity statement

The shareholder equity statement, also called the stockholders equity statement, stakeholders equity statement, or statement of shareholder equity, is a document showing the value of investments and retained earnings within your company.

When the company generates profits larger than its losses, its shareholder equity is positive. On the other hand, if losses prevail, shareholder equity is negative.

Simplify financial reporting & streamline expense management with Ramp 

Ramp is a leading-class software that makes financial reporting headaches a thing of the past. The platform brings automation into the equation, keeping real-time records of all financial aspects of your business.

With real-time financial data automation, you’ll have the data at your fingertips when it’s time to check your company’s financial health. Aside from general financial reporting, including the reports mentioned above, Ramp gives you instant access to these:

  • Expense reports: Automated expense reports track each penny your company spends on a granular level and make it easy to find and fix inefficiencies.
  • Ecommerce reporting: Dive into dedicated eCommerce reports to track and optimize the performance of your online efforts.
  • Variance reports: Variance reports give you more control by showing how much project income and expenses typically deviate from expectations in your business.

The bottom line

The bottom line is simple. If you want simplified control over your company’s financial reporting, it’s time to check out Ramp. The platform brings reporting to the next level and comes with several additional perks, like:

  • Unlimited spending accounts: Whether you have three employees with spending accounts or a thousand, Ramp allows you to track and manage spending across your network.
  • Bill payments: Pay all of your bills in one place on the Ramp platform.
  • Seamless accounting: Ramp has several accounting features, so you’re not caught off guard when tax season arrives.

Reach out to us today to learn what Ramp can do to help you meet your financial reporting goals.

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FAQs
Why is a financial report important?

Financial reporting is critical to your business for several reasons. Some of the most significant reasons include the following:

  • Meet Regulatory Requirements. Publicly traded companies are required to produce financial reports quarterly and annually. If they don’t, they could be penalized by the SEC or removed from their stock exchange platform.
  • Learn More About Your Business. Financial reports let you dive into your company’s financial health. When you keep track of your company’s financial position, you’re better prepared to act as soon as a problem or opportunity arises.
  • Attract Investors. Investors need to know detailed financial information about your company to determine its fair valuation. If you plan on attracting investors, it’s best to have financial reports ready to hand to them.

What are the steps in preparing a financial report?

The steps in preparing a financial report can be daunting or as simple as possible. If you plan on creating financial records manually, you’ll need to:

  1. Track your expenses.
  2. Perform detailed accounting to produce the data you need for your financial report.
  3. Prepare each report individually by calculating all data for reporting.

The good news is that technological innovation has made financial reporting easier today than ever before. Today, you have access to Ramp, making the steps far less cumbersome. The only steps needed are:

  1. Sign up.
  2. Connect all financial accounts and answer a few questions.
  3. Click the report you want to see.

What is the difference between a financial statement and a financial report?

A financial report contains all financial statements for a company and includes, at a minimum, a balance sheet, a cash flow statement, an income statement, and a shareholder’s equity statement. Each one of the statements you find in a financial report is considered a financial statement.

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