Currently, the growth process of companies brings with it technological advances and process automation. The demands implicit in these changes make it essential for companies to prepare internally to manage their financial resources intelligently so that they can make informed financial decisions aligned with the company's goals.

Companies become vulnerable when they suffer unforeseen financial imbalances, usually characterized by insolvency and low liquidity, caused by ineffective financial policies or deficiencies in strategic, administrative, productive, or financial performance. It is very important for a company to know its economic and financial condition to identify weaknesses, problems, and the variables that cause them. Financial statements are the must-have tools that will allow you to detect them and take the appropriate corrective measures in time and to clearly state future goals.

The analysis of the company’s financial statements allows you to see relevant economic information for a specific period, since they include all the elements that form the annual accounts of a company. There are four financial statements that clearly show the company’s situation:

• Balance sheet
• Income statement (Profit and Loss Statement)
• Cash flow statement
• Statement of shareholders’ equity

Financial statements also help lenders to know whether a company is profitable, what the risk of lending them money is, and what the limits or amounts of the loans would be. Likewise, shareholders will be able to know whether their investment is profitable or not.

Now, we will focus on the income statement, also known as the profit and loss statement. The profit and loss statement details the revenues, capital expenditures, and operating expenses incurred by a company during a given period. Typically, it is generated quarterly or annually. Generating a profit and loss statement helps companies see how profit margins grow as revenue increases or expenses decrease. Comparing such statements from different accounting periods also helps companies track the effects of cost-reducing or revenue-generating activities over time.

Income statements are a useful tool for business owners and outside analysts to evaluate a company’s long-term viability and profitability. They also help companies measure the impact of operational strategies on finances and the design of their strategies. In fact, profit and loss statements are a legal requirement for U.S. business companies.

To clarify, the goal of the income statement is:

1. Determine the profitability of the company within the evaluated period.
2. Evaluate the growth of the company from a specific period.
3. Determine the risks of making new investments.
4. Estimate the capacity to pay a loan in the medium and long term.
5. Help in the distribution of dividends between partners and shareholders according to the total net income.

As we have seen, analyzing the income statement allows you to have a more organized and clear view of the state of your finances as well as to identify weaknesses, specifically those parts of the financial process that are consuming more economic resources, giving you a better perspective on the operational effectiveness of the company. At My Accounting Now, we will help you get your finances in order and receive these financial statements in time for decision-making. Call us at (786) 228-8689 or email us at info@myaccountingnow.com.