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The Ultimate Guide to Financial Reporting

December 8, 2021 | Tanya Goncalves  
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This blog was first published in early 2021 and updated on December 8, 2021.

Numbers paint a picture, tell a story, reveal the truth. As such, it's critically important that your financial reporting is accurate, thorough, and up to date.

As one of the minds leveraging those numbers, it’s your job, as part of the finance team, to tell that story and paint a picture that helps everyone better understand your company’s financial performance—all to get to the truth behind your organization’s total health. And one of the most important tools you’ll draw on to achieve that is your financial reporting.

Financial Reporting Paints a Comprehensive Picture

Built around three foundational documents—your income statement, balance sheet and cash flow statement—financial reporting provides a comprehensive picture of your business’s financial results and trends.

Doing so helps you deliver insights and informs the decisions made throughout your company and beyond. Everyone from your executives, board members and department-level staff, as well as the regulators, creditors and stakeholders with a vested interest in your organization, rely on the numbers revealed within your financial reporting. 

There’s a lot you can learn from the numbers in your financial statements. You just need to know how to look at them. And that starts with the following:

What Is Financial Reporting?

Financial reporting is a formalized view into your organization’s financial performance. The three most important financial statements for running your business are your income statement, balance sheet and cash flow statement. For public companies, financial reporting is a regulatory requirement with set deadlines in place, but both private and public companies also use it to keep key stakeholders informed as to a company’s current and future financial status. It empowers investors, executives and boards of directors as they assess their ongoing strategy and goals, make investment decisions and decide on any adjustments to the company’s ongoing trajectory.

Your Core Financial Statements

Three core statements make up the foundation of your financial reporting. Your income statement, balance sheet and cash flow statement provide a key piece of your organization’s story. They’ll become the base of the reporting you file for tax purposes and creditors, the documents you provide to regulatory bodies like the U.S. Securities and Exchange Commission (SEC) and the data you draw on for your Annual Report and internal documents, dashboards and reporting.

The income statement, balance sheet and cash flow statement fit together to reveal a big picture view of your business. Here’s a brief description of each:

What Is the Income Statement? 

Your income statement, otherwise known as your profit and loss (P&L) statement or statement of earnings, tells you exactly what it purports—how much income you’ve got coming in or not. In other words, it shows you how profitable your business is based on the relationship between revenues and expenses. Your income statement outlines revenues and expenses and is used to measure your organization’s profits and losses during the reporting timeframe. In doing so, it helps measure the profitability of your business.

What Is the Balance Sheet?

Also known as your statement of net worth or statement of financial position, your balance sheet looks at your business’s total assets, liabilities and shareholders’ equity. It allows you to measure rates of return and demonstrates how your assets are financed—whether through debt or equity. Your balance sheet is a key document for shareholders, regulators and tax authorities looking to determine the health of your organization.

What Is the Cash Flow Statement?

Your cash flow statement provides critical data on how your money is being spent, where it’s coming from and whether there’s enough available to keep up with operating expenses and ongoing debt repayment. It tracks cash movement for stakeholders of all kinds—including investors and creditors, as well as your own team—and must eventually be reconciled to the bank to make sure you’ve covered all your cash transactions.

Your cash flow statement can be prepared in two ways: the direct or indirect cash flow methods. Both calculate your net cash flow from operating activities. The main distinctions are the starting point, the types of calculations you use, and the level of detail in the information you disclose.

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The 5 Types of Financial Ratios 

Those three foundational financial statements provide you with the numbers you need to tell the story of your financial health, empowering you with key data both your internal and external stakeholders will draw on to establish critical insights about your business. But the numbers themselves are just the start—developing true insight starts with some basic calculations, otherwise known as financial ratios.

Financial ratios enable you to perform quantitative analysis that lets you understand your organization better. There’s an entire list you can draw from to tell the story of your business better.

All of them fall under one of five main categories:

Profitability-Ratios1. Profitability Ratios determine your organization’s ability to generate profit relative to revenue, operating costs, balance sheet assets and shareholder equity. They do this by showcasing how much profit your company can gain from those assets. For example, return On Assets (ROA) measures your company’s efficiency in generating earnings from assets.


Liquidity-Ratios2. Liquidity Ratios measure your company’s ability to pay off its current debt without raising extra capital. Your Current Ratio, for example, looks at current assets in relation to current liabilities. This helps investors better understand your organization’s ability to pay off short-term debt obligations.


Efficiency-Ratios3. Efficiency Ratios calculate how well your business manages its assets and liabilities internally. Your Inventory Turnover Ratio, for instance, measures the rate at which your company turns over inventory in a specified period. Ultimately helping you better determine pricing and when to purchase new inventory. (Read more about boosting the efficiency of financial reporting in this post)


Leverage-Ratios4. Leverage Ratios determine how much of your organization’s capital is assumed through debt and evaluate how reliant you are on debt for growth. Your Debt-to-Equity (D/E) Ratio, for example, calculates how much your equity is leveraged against your outstanding debt to determine how much of your business is financed through debt.


Market-Value-Ratios5. Market Value Ratios calculate your publicly held company’s current share price, helping investors evaluate whether those shares are overpriced or underpriced. For example, your Earnings Per Share Ratio looks at your company’s profit in relation to outstanding shares to let you and your investors know how much money your company earns from each share of its stock.

Financial, Operational and Managerial Reporting 

Of course, your financial reporting isn’t the only type of reporting happening in your organization. Management reporting (or managerial reporting) and operational reporting are just as important for building your business, moving your organization towards its goals and providing an up-to-the-moment picture of your day-to-day operations. They’ll help you better understand the root causes of your organization’s financial health. Let’s look at each in turn:

Financial Reporting

As outlined above, your financial reporting looks at your financial results and supporting information. In doing so, it provides you with key data that informs your internal business decisions and is shared externally with shareholders, regulators, creditors and investors. As such, it needs to meet certain regulatory requirements and follow a specific format. 

Management Reporting

This isn’t regulated in the same way. That’s because, for the most part, your managerial reports are only used internally, for everything from your day-to-day decision making to Board of Directors reporting. You may choose to include forecasting or predictive data, segment down to different parts of the business or departments and incorporate an operational view for a fuller, more integrated picture of your business.

(To dig deeper into predictive data, take a look at this post about predictive budgeting next.

Operational Reporting

This shares the details of your organization’s day-to-day operations with data around such things as production costs, resource expenditures and the processes you have in place. How often you choose to report on each will depend on your organization. But the point is to concentrate on the short term and drill down into the areas that will provide the insights your company needs to operate day to day.

Together, this reporting will tell a fuller story of your business and its needs. But keeping pace with those reporting requirements can be a challenge, especially when you consider standards such as the generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), which regulate your financial reporting and can be time-consuming for your team to maintain.

GAAP and IFRS: The Financial Reporting Standards 

Depending on the industry you work in, you may have unique reporting requirements you’ll need to adhere to—but two main sets of standards continue to regulate financial reports across industries. Whether you adhere to GAAP or IFRS will depend on where your company is listed and where your stakeholders operate. 

GAAP and IFRS are both designed to offer a set of general rules and guidelines for reporting and ensure everyone is working by a standard set of methods and definitions. Organizations working across borders or handling international mergers and acquisitions may be required to keep up with both.

Standard

What it Stands For

Summary

GAAP (or U.S. GAAP) 

Generally Accepted Accounting Principles

The standard set of rules for financial reporting in the U.S., GAAP, is adhered to by the U.S. Securities and Exchange Commission (SEC) and issued by the Financial Accounting Standards Board (FASB). GAAP covers topics such as retained earnings, revenue recognition, financial statement presentation, balance sheet classification, liabilities, foreign currency, transactions and so on.

IFRS

International Financial Reporting Standards

The IFRS Foundation and International Accounting Standards Board (IASB) is currently used in over 140 countries worldwide, including the European Union. It establishes a common language and standardized definitions across countries and continents, covering topics such as the presentation of financial statements, revenue recognition, employee benefits, fixed and intangible assets, etc.

Find out more about GAAP and IFRS as well as how to balance all of your reporting needs.

Your Financial Reporting Timeline 

Of course, the timing of your operational reporting and managerial reporting is up to you. And it will depend on your goals, processes, and the resources you have to draw from—financial reporting has a cadence of its own.

For public companies, the timing of some filings are regulated by bodies such as the U.S. Securities and Exchange Commission (SEC). For others, they are set internally and will depend on your organization and stakeholder demands.

Here’s a rundown of some of the key dates in your financial reporting timeline:

Annual Reporting 

Form 10-K 

Due within 60 to 90 days of the closing of your fiscal year.

Produced annually, Form 10-K is an SEC filing required of all publicly held companies and designed to comply with specified guidelines. In addition to your audited financial reports, it includes detailed information on operations. It provides discussion points that help investors assess your business performance and the risks facing your company.

This post details the best practices for completing your Form 10-K.

Annual Report

Usually published within three to four months from the end of your fiscal year.

Your Annual Report is designed largely for shareholders and is often featured on your corporate website. It can be glossy, colored and dynamically designed and is usually an abbreviated version of what’s included in your Form 10-K. It features information on company activity and finances, including your balance sheet and income statement.

Quarterly Reporting

Form 10-Q

Due within 45 days from the end of each quarter.

Your 10-Q is filed quarterly to the SEC and is another standard requirement for publicly held companies. It offers a view of performance over the quarter that’s passed, with fewer details than Form 10-K and financial statements that are usually unaudited. It can offer insight into the changes your organization is experiencing and provide a timely sense of any legal risks that might be forming.

Quarterly Report

Usually shared a few weeks after the end of each quarter.

Your Quarterly Report collects your ongoing, unaudited financial statements on a three-month cycle—including your balance sheet, income statement and cash flow statement. In addition to giving stakeholders a sense of your quarterly figures, it may also include year-to-date information and comparative data from past quarters.

Monthly Reporting

Month-End Reports

Produced anywhere between a few days and a few weeks after the end of each month.

Your month-end reports help you stay on top of your financial performance and ensure everything continues to run smoothly. Done largely for internal use, monthly reporting doesn’t have the same external uses as the reporting above. This means the form and timeline it takes will vary based on your company’s needs.

You’ll usually want to include your balance sheet, income statement and cash flow statement. But depending on your business may choose to supplement those with additional reporting, such as a bank covenant report, an analysis of inventory, your debt/EBITDA ratio, working capital analysis and so on. This monthly reporting helps facilitate ongoing decision-making and ensures you’re working towards your company goals.

Financial Reporting Challenges and Examples 

Financial reporting is a basic requirement of your finance team. At the same time, it's clearly a critical part of business activities such as strategic planning, investor relations, taxes and SEC filings. But just because it’s so critical and pervasive doesn’t mean it isn’t without its challenges.
Here are a few examples of common issues your team may be facing as you work to meet your financial reporting needs.

Time

Financial-Reporting-Challenges_1

It can be manual and time-consuming. Reporting can take a lot from your team, both in terms of time and effort. This is true even if you’re using software like Excel. As you push beyond what Excel was meant to be used for—from sourcing and manipulating your data to sharing your reports with applicable stakeholders in a variety of formats—it can start to get tedious for your team. It also drains the resources you have.

More scalable technology and automation will help you get more value from your finance team. At the same time, cut down on the work spent on repetitive, manual tasks.

Inaccurate

Financial-Reporting-Challenges_2

There’s potential for inaccuracies. With all of that manual labor comes the chance for— even the inevitability of—mistakes. Those could come in the form of information that gets lost in translation. Or, they could be the result of data that is entered incorrectly. Whatever the reason, those mistakes can be more than just a nuisance. They can have serious repercussions on your final published results and the accuracy of your regulatory and stakeholder reporting.

Incompatible

Financial-Reporting-Challenges_3It can be incompatible with deeper analysis. While the data your financial reporting offers will be integral to your organization’s success, when it exists in a silo it’s harder to apply to the deeper analysis you need. By bridging your different types of reporting—and using technology that allow you to drill down into deeper levels of detail, apply real-time forecasting and visualize your data in a variety of ways—you can start to build more powerful insights from your numbers.

The right tools can help you improve your financial governance to build a more efficient and accurate process for your financial reporting—and ensure it’s offering you the chance to dive into the insights you need.

Find out how Vena customer PRGX Global overcame their reporting hurdles. 

Exploring the Numbers With Financial Dashboards

Better tools can help you build a more efficient financial reporting process. At the same time, they will enable you to share your results organization-wide, so everyone is working towards the same goals. One such popular tool is the dashboard.

Dashboards are a powerful snapshot of your business, made by tracking holistic metrics and KPIs—from financial and operational metrics to those that look at sales and marketing, HR and customer success. They communicate your performance against your strategies and values and track the ongoing health of your organization. They do this by pulling from many data sources—including your financial reporting data—to offer a single view.

In doing so, dashboards help you leverage your data to drive your business forward, facilitate collaboration and transparency and communicate performance to your executive team and organization as a whole. They also empower finance teams to focus on key company metrics and help your entire organization better understand how those metrics affect its bottom line. When produced effectively and efficiently using the right technology, dashboards can provide transparency and access to your entire organization.

What are the three key dashboards?

The right dashboards will help you track and evaluate your entire organization’s financial performance—giving you more relevant and reliable visibility into the business’s health as a whole. And for many companies, that visibility starts with three key dashboards:

1. Business Health Dashboards: Business health dashboards evaluate both short- and long-term financial metrics, based on your company’s short- and long-term goals. For full transparency and visibility, they should also include budget to actual variance analysis.Executive Dashboard - Operational

2. Employee Health Dashboards: Employee trends and behavior affect a company’s bottom line and, as such, are a vital measurement for finance teams. Effectively tracking and acting on employee health findings means working closely with HR and syncing HR data with financial data to determine what the numbers mean for your business.Executive Dashboard - People

3. Customer Health Dashboards: Measuring how existing customer relationships impact your bottom line can help sales and customer success teams understand where they should focus their efforts and resources. Customer health data also provide insight into the stability of your company’s customer service function.Executive Dashboard - Customer
Read more about these three critical dashboards.

Essential Financial Dashboard Metrics

By offering ongoing financial data, dashboards help you keep on top of your organizational performance. They let you dig deeper into that data and connect it with your operational and management reporting, so you have a holistic, connected view of your business. At the same time, they make sure everyone is working off the same information and building towards the same business goals.

So what financial metrics should you focus on as you populate those dashboards?

These five:

3_Operating-cash-flow1. Operating cash flow: This is a measurement of how much money your business brings in from its daily operations. Your operating cash flow offers insights into whether your organization is in a good position for growth. It also tells you whether you’ll be able to maintain a positive cash flow.

3_Operating-expenses2. Operating expenses: These are the expenses your organization incurs through standard operations. They include rent, inventory costs, payroll, insurance, inventory costs, etc. Your operating expenses (OPEX) help determine where you might be able to make cuts during tighter times.

3_Net-profit-margin3. Net profit margin: This shows you how well your business is building profit compared to revenue and what percentage of each dollar earned is actually profit. Ultimately, your net profit margin determines how fast your organization is growing and how well it’s meeting long-term goals.

3_Working-capital4. Working capital: By tracking available cash, short-term investments and accounts receivable, your working capital tells you how well your business can generate cash quickly. They also tell you whether you’re able to meet your short-term financial obligations.

3_Sales-growth5. Sales growth: By measuring your sales team’s ability to increase revenue over a certain period, sales growth offers insight into your organization’s profitability. It also offers insight into whether your business is growing or stagnating.

Just as important as choosing the right metrics for your business is ensuring everyone has a clear definition of each and knows why you measure it. By putting everyone on the same page, you’ll keep everyone working towards the same goals.

Learn more about how to use your financial reporting data to fuel operational success.

The Benefits of Automating Financial Reporting 

The right tools can help your team streamline your financial reporting and your managerial and operational reporting—and bring everything together through effective and meaningful dashboards. By automating repetitive manual tasks, you’ll also get more done in less time and free up your team to focus on analyzing the numbers, uncovering new information and shaping the strategic direction of your business.

In doing so, automation can help you:

4_accuracy-and-data-integrity1. Better ensure accuracy and data integrity. You’ll be able to ensure your data is sourced accurately and nothing gets lost in translation or gets missed due to human error.

4_make-better_faster-decisions2. Make better, faster decisions. You’ll be able to turn your data into insights—and put those insights into action—faster.

4_Boost-stakeholder-satisfaction3. Boost stakeholder satisfaction. Automation will help you get more accurate data and more powerful insights in front of your stakeholders more quickly.

4_Turn-information-into-action4. Turn information into action. By automating the repeatable tasks, you’ll be able to spend more time developing actionable insights for your business.

Automation can also help you build a better audit trail by creating a log of your data, workflows and processes. This gives stakeholders a lens into the data you pulled from and the calculations you performed and helps identify any potential errors that might have happened along the way. You’ll be able to highlight any red flags early and deal with them before they become more serious problems.

All of which can help you up your financial reporting game. And, of course, getting to the truth behind the numbers faster and more effectively.

Find out what other benefits you can gain by automating your financial reporting.

 

Do you want to read more about financial reporting? Take a look at one of these posts next:

Recap
The Ultimate Guide To Financial Reporting
  • Your financial reporting provides a comprehensive picture of your business’s financial results and everything around it. Built around three foundational financial statements—your income statement, balance sheet and cash flow statement—it informs your tax filings, creditor reports, regulatory reporting and internal reporting. 
  • Keeping up with the needs of your financial reporting—and balancing it with your operational and managerial reporting needs—can come with challenges. Often manual and time consuming, there’s the potential for inaccuracies and human error and it can sometimes be incompatible with deeper analysis. 
  • The right tools can create a more efficient reporting process. Dashboards—with the right set of metrics—can help you better understand and communicate your business performance and track the ongoing health of your organization, to understand how well you’re keeping up with your strategies and values. Automation, on the other hand, can help streamline your financial reporting process.

Tanya Goncalves

Tanya Goncalves

Tanya Goncalves is a brand leader and marketing trailblazer who has an interest in refreshing brands through content creation. As the Content Marketing Manager at Vena, she often innovates and develops new ways to build brand recognition through interesting campaigns and creative content.

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