Today we will talk about What are the advantages and disadvantages of financial statement analysis ? Before we know what is a financial statement? Also called accounting statements or financial reports, they are reports used to inform about an economic situation . This information is useful for business managers and other stakeholders such as owners, investors, and shareholders. These reports mostly make up the final accounting product.
Financial statements are made by the finance or accounting area . Knowing then its definition and seeing who the business structure helps, we can enter into the advantages and disadvantages of an analysis of financial statements.
Advantages of financial statement analysis
Companies choose different processes to be profitable, safely increasing their productivity. One of these safe ways is the analysis of financial statements, its use makes it easier to respond to possible problems . Using financial analysis in a company brings advantages that help the fulfillment of our business plan , such as better communication in the company and increased productivity. Next, we will mention and explain the advantages it has.
Multiply the competitiveness of our company
One of the characteristics that every company should have is the ability to solve the needs of its consumer , which can be achieved by analyzing financial status analyzes, which helps make decisions based on these reports that you provide us.
Increase productivity in the company
Currently in such a competitive market, companies have production prioritized in their business strategy, and using financial status analysis helps in detecting problems on time. This to generate new paths with which to meet the company’s objectives .
Improve communication in the company
Not having good communication slows down the achievement of objectives in companies . To which a solution is to have a system that shows the information of each specific area , so that its workers can analyze those reports, which are given by the analysis of financial statements.
Gives a better view in the finance department
If we have analysis of financial statements and manage them correctly, we can reduce the margin of error in the financial department , which facilitates the detection of any abnormality in time, preventing the company.
Disadvantages of financial statement analysis
Financial statements have considerable advantages, such as helping to give an easy response in case of a problem, but it also has some negative effects, such as generating patterns in the market, affecting decision-making , it only shows how the company did it once, without giving the chance to compare information with past years and generate market patterns with the possibility of changing suddenly . We will explain these disadvantages in more detail below.
Generate patterns in the market
A disadvantage of the use of financial statement analysis when making decisions is that the data they provide is based on the current market, which can change suddenly, so the directors of the company cannot fully trust , since it is not a daily check
They show what is done only once
This disadvantage is related to the previous one, since a problem with the analysis of financial statements is that they precisely show what the company does on one occasion, this without showing if the company is doing better than in previous years , taking away the possibility to analyze. This makes it a continuous scan that should be used only once.
