Managing a company is a complex task that requires constant attention to various aspects. One of the most important aspects is the regular review of management reports, which are essential tools for evaluating the economic and financial performance of the company.
In this article, we will present the 5 management reports that every company should analyze on a weekly and monthly basis: P&L, Balance Sheet, Cash Flow, Statement of Financial Position, and Debt Aging. We will discuss the importance of each of these reports, how to interpret them, and provide additional tips for structuring them and conducting an effective review.
P&L Report (Profit and Loss)
The P&L report, also known as the Income Statement, is one of the most important financial reports for any company as it shows the income, expenses, and profits of the company over a specific period of time. It is important to review this report weekly and monthly to evaluate the company’s economic performance and make necessary adjustments.
To interpret the P&L report, it is important to understand its different components, such as sales revenue, cost of goods sold, and general and administrative expenses, and especially how they are structured in the Chart of Accounts. It is also necessary to analyze the relationship between these components to identify areas for improvement. This well-implemented and interpreted report allows evaluating the profitability of the company and its efficiency in utilizing its resources, answering questions like ‘How much does my company earn or lose?
Tips for structuring your P&L report:
To effectively structure your P&L report, it is important to consider the following tips:
- Clearly define revenues and expenses: Clearly and in detail define the different types of revenues and expenses generated by the company, such as sales, services, interests, operating costs, administrative expenses, etc.
- Group revenues and expenses into clear categories: It is recommended to group revenues and expenses into categories to facilitate analysis and comparison, and to be able to present them in logical structures based on the questions you want to address with the report. For example, expenses can be grouped into categories such as production costs, operating expenses, financial expenses, or even fixed and variable expenses, recurring or occasional expenses, etc.
- Include taxes and charges: It is important to include taxes and charges in the P&L report to have a realistic view of the company’s profitability and avoid tax surprises.
- Use comparisons: It is advisable to include comparisons with previous periods or a budget to evaluate the company’s performance over time and detect possible deviations, especially with Year-to-Date (YTD) or End-of-Period (EOP) metrics, to clearly see the effects of such deviations.
In summary, the P&L report is a key financial report that allows evaluating a company’s profitability and efficiency in resource utilization. To structure it effectively, it is important to clearly define revenues, group expenses by category, include taxes and charges, use comparisons, and present the information in a clear and concise manner.
P&L Example:
Below is an example structure of a P&L report in the IDB Lens application, where you can clearly see that revenues and operating costs were structured first, followed by operating expenses, and then non-operating expenses and revenues, ultimately resulting in the Net Income for the period.
This is a classic structure within reporting, although many others can be chosen based on the company’s cost and revenue structure. Do you know yours?
Balance Sheet Report
The Balance Sheet is a report that shows the assets, liabilities, and equity of the company at a specific point in time and is considered one of the three key reports that every company should frequently consult to understand its economic and financial health. Therefore, it is important to review it on a weekly and monthly basis to understand the current financial position of the company.
To interpret the balance sheet, it is necessary to understand its different components, such as current assets, current liabilities, and equity. It is also important to analyze the relationship between these components to identify areas for improvement and financial strength.
Tips for structuring your Balance Sheet report:
Here are some useful tips for structuring the Balance Sheet report effectively:
- Order assets by liquidity: It is recommended to order the company’s assets by liquidity, from those that can be easily converted into cash to those that take longer to convert. This facilitates the evaluation of the company’s ability to meet its financial obligations. Generally, assets are grouped as “Current” and “Non-current.”
- Group liabilities by maturity: It is advisable to group the company’s liabilities by maturity, from those that are due in a shorter period to those that are due in a longer period. This allows evaluating the company’s ability to meet its financial obligations in the short and long term.
- Include equity: It is important to include equity in the Balance Sheet report as it reflects the owners’ investment in the company and their stake in it.
- Present the information clearly and concisely: It is essential to present the information in a clear and concise manner for easy understanding and analysis. Graphs, tables, or interactive reports like those in IDB Lens can be used to facilitate report readability, allowing different time periods, currencies, or other indicators to be defined for adjusting balances.
In summary, the Balance Sheet report is a key financial report that shows the financial position of the company at a specific point in time. To structure it effectively, it is important to order assets by liquidity, group liabilities by maturity, include equity, present the information clearly and concisely, and use comparisons.
Cash Flow Report
The Cash Flow report shows the cash inflows and outflows of a company during a specific period. It is important to review it on a weekly and monthly basis to understand the cash availability and the company’s ability to meet its obligations. It is the third report considered essential for measuring the financial health of a company.
To interpret the cash flow, it is necessary to understand its different components, such as cash inflows from sales and cash outflows. It is also important to analyze the relationship between these components to identify areas for improvement and optimize cash management.
Tips for structuring your Cash Flow report:
Consider the following tips to structure the Cash Flow report effectively:
- Separate operating, investing, and financing activities: It is recommended to separate the operating, investing, and financing activities in the Cash Flow report to analyze them separately and evaluate their impact on the company’s cash flow.
- Present detailed information: It is crucial to present the information in detail to analyze the origin and destination of the company’s cash flows. Tools like IDB Lens can be helpful as they allow interactive report features like expanding or collapsing report lines to obtain increasingly detailed views.
- Include a projection section: It is important to include a projection section in the Cash Flow report to estimate the company’s future cash flow and make strategic decisions accordingly. Key projections include sales and collections for income and salary payments, assumed fixed costs, and costs associated with service provisions for expenses.
- Present information clearly and concisely: It is essential to present the information in a clear and concise manner for easy understanding and analysis. Graphs and tables can be used to facilitate report readability.
In summary, the Cash Flow report is a key financial report that shows the amount of cash entering and leaving the company during a specific period. To structure it effectively, it is important to separate operating, investing, and financing activities, present detailed information, use comparisons, include a projection section, and present the information clearly and concisely.
Cash Flow Example:
Below is an example structure of a Cash Flow report in the IDB Lens application, where you can clearly see that it starts from the EBITDA value and then structures different concepts of Operating Cash Flows, Investment Flows, and Financing Flows.
Do you conduct detailed cash flow analysis in your company, separating them based on operating, investing, and financing activities?
Statement of Financial Position Report
The Statement of Financial Position is a report that shows the net worth of a company at a specific point in time. It is important to review it on a weekly and monthly basis to understand the evolution of net worth and the company’s ability to meet its obligations.
To interpret the Statement of Financial Position, it is necessary to understand its different components, such as share capital, reserves, and accumulated profits or losses. It is also important to analyze the relationship between these components to identify areas for improvement and financial strength.
Tips for structuring your Statement of Financial Position report:
To structure the Balance Sheet report clearly and effectively, consider the following tips:
- Separate assets and liabilities into categories: It is important to separate assets and liabilities into categories to analyze them separately and evaluate their impact on the company’s financial position.
- Use comparisons: It is recommended to include comparisons with previous periods or the budget to evaluate the evolution of the company’s financial position and identify potential deviations. An example of this is how in IDB Lens, you can break down periods with just one click to view them grouped by year, quarter, or month, which is crucial for understanding the evolution of net worth.
- Include an analysis section: It is important to include an analysis section in the Statement of Financial Position report to explain the changes and evolution of the balance sheet and make strategic decisions accordingly.
- Present information clearly and concisely: It is essential to present the information in a clear and concise manner for easy understanding and analysis. Graphs and tables can be used to facilitate report readability.
In summary, the Statement of Financial Position report shows the financial position of a company at a specific point in time. To structure it effectively, it is important to separate assets and liabilities into categories, present detailed information, use comparisons, include an analysis section, and present the information clearly and concisely.
Debt Aging Report
The Debt Aging report shows the age of a company’s debts, both outstanding payables and receivables. It is important to review this report on a weekly and monthly basis to track the evolution of obligations and monitor payment deadlines.
To interpret the Debt Aging report, it is necessary to understand its different components, such as the maturity time of debts and payment dates. It is also important to analyze the relationship between these components to identify areas for improvement and avoid delays in payment obligations.
Tips for structuring your Debt Aging report:
Here are some tips for structuring the Debt Aging report effectively:
- Classify debts by age: It is important to classify debts by age to identify the oldest and highest-risk debts for the company.
- Include payment history information: It is crucial to include payment history information for each debt to evaluate the likelihood of payment and make decisions accordingly.
- Use graphs and tables: It is recommended to use graphs and tables to present information clearly and concisely and facilitate analysis.
- Include an analysis section and recommended actions: It is important to include an analysis section in the Debt Aging report to identify debts with a higher risk of non-payment and take actions to mitigate their impact on the company’s financial situation.
In summary, the Debt Aging report is a crucial financial report for cash flow management and the financial health of the company. To structure it effectively, it is important to classify debts by age, establish risk categories, include payment history information, use graphs and tables, and include an analysis section with recommended actions.
Example of Debt Aging:
Below is an example of a Debt Aging report structured similarly to the format in IDB Lens, where key indicators such as the number of overdue invoices, the overdue amount, the list of debtors with their amounts and deadlines, and explanatory graphs are clearly presented.
Conclusions
In conclusion, management reports are crucial tools for evaluating the financial performance of a company and making necessary adjustments. The 5 management reports that every company should analyze on a weekly and monthly basis are: P&L, Balance, Cash Flow, Statement of Financial Position, and Debt Aging.
It is important to consistently review these reports and conduct a thorough analysis of each one to make informed and strategic decisions. Additionally, it is recommended to seek the advice of a finance expert to conduct a more effective review and optimize the financial management of the company.
With IDB Lens, you can access these reports and many more, structured directly based on your Chart of Accounts and automatically updated from your ERP data. You’ll have valuable and reliable information at your fingertips, enabling you to truly manage your company based on data. If you’re interested in learning how we can help improve your management, please complete the Contact Form, and we will get back to you promptly!
