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Comprehensive Financial Statement Analysis for Effective Risk Management

Analyzing financial statements to assess key metrics such as sales, revenues, gross profit, and expenses. Learn about accrual vs. cash basis, fixed and variable expenses, and net profit calculation. Utilize ratios for a detailed insight into revenue mix, gross profit, and expense analysis.

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Comprehensive Financial Statement Analysis for Effective Risk Management

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  1. Financial Operating Statement Analysis Statistics & Risk Management

  2. Sales and Revenues • Sales are the funds received from the normal products and services provided by an organization. • Cash Registers • Bank Deposits

  3. Sales and Revenues • Additional Revenues result from Interest received, sales of assets, etc. • Bank Statements • Contracts Accrual Basis: Recognized when Earned Cash Basis: Recognized when Received

  4. Gross Profit Gross Profit is computed by subtracting the direct costs of the sales from the sales Revenue. Gross Income = Sales – Cost of Goods Sold

  5. Gross Profit Gross Profit is calculated so that management can understand what the sales of products generate in the area of profit. Inventory plays into this, will cover that later.

  6. Expense Summary Compilation of Operating Expenditures Fixed Expenses (Depreciation, Rent….) Variable Expenses (Wages, Utilities…) Excludes Purchases for Resale.

  7. Depreciation & Amortized Expense • Used when the cash price is not expensed out all at once. • Buy a business vehicle for $50,000 that will last 10 years. What is the cost per year assuming the vehicle will be junk in 10 years? • Buy a years insurance policy for $12,000. What is the expense per month?

  8. Net Profit (or Loss) Take the Gross Profit and subtract the Expenditures and you have the Net Profit (or Loss)

  9. Using Ratios Revenue Mix Ratios Gross Profit Ratios Expense Mix Ratios Expense to Revenue Mix Ratios

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