Importance of performing an account analysis to assess the financial health of a business

Analyzing a company’s accounts is a way to assess its profitability and creditworthiness. For this reason, acquirers, lenders and various investors request a financial audit before signing the contract. In addition, they request the intervention of an external service provider. The head of an enterprise must therefore call on an accounting firm . Learn about the importance of the procedure and the tasks to the program.

Objectives of Account Analysis

When an accounting firm deals with a project to analyze the accounts of a company, its objective is to study the ability to the latter to get profits. It also has a mission to check whether the company has the chance to prosper and develop in the long term. Finally, it is obliged to be well informed about the growth strategy and financing policy adopted by the company. At the same time, it will detect the risks involved. To carry out all this, a careful study, sector by sector, is on the agenda. Therefore, the examination requires a great deal of expertise. That is why it must be delegated to a professional. Theaccounting company usually entrusts the task to an accountant. The latter may collaborate with an external auditor .

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Stages of accounting analysis

The first task for the expert is to study the accounts of the company that recruited him. To accomplish this operation, the professional needs access to various documents to name only the accounting balance sheet and profit and loss statement. In fact, he must try to get a good knowledge of revenues and expenses to understand the financial statement of the corporation. At the same time, the expert counts will detect abnormalities. It should not be forgotten that the aim is to reassure not only investors and potential partners of the company but also the manager. After studying the accounts, the professional also studies the various results, including turnover. It also measures the company’s profitability, self-financing capacity and ability to repay debts, taking into account various indicators. All the previously mentioned works require the application of various techniques. Only an experienced accountant is able to carry out them.

The consequences of this decision

After an analysis of the accounts by an accounting firm, an officer will receive a complete report. It is a carefully drafted document that clearly indicates the financial situation of his company with the various assessments of the accountant. The document reveals, for example, working capital requirements, the status of various movable and immovable assets, actual expenses and notional expenses, the financial income acquired and those to be obtained, as well as risks such as depreciation of stocks of commodities, the size of debts, and the inadequacy of finance useful for the development of activities. Note that it is thanks to the analysis of accounts carried out by the professional that the manager will be able to know with precision whether his company has a negative or positive balance sheet at a given moment of theaccounting year . In addition, the results are reliable.

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