Financial position is the most crucial part of any company. Whether your company is small or large the financial position of the company is very important. Financial position is when you can decide where your company is headed and whether you have enough financial capability to achieve that. There are number of ways to evaluate the financial position of a company.
Watch out for the overhead costs
Most of the time companies are doing pretty badly due to the extreme overheads. Overheads of a company includes, rent salaries etc. It is quite difficult to keep this component low but if you get couple of audit firms to do a thorough audit for you to understand the costs that incur it will be easier for you’re to get an idea of where the money goes to. Also you can use the financial statements to figure out this as well. You simply have to find the ratio of the earnings to overheads. Overhead expenses/sales can be used to find out the ratio and if this is more than 1 then it is a big problem and it means you are not in a good position sales wise or your overheads are too big.
You can look beyond your financial statements
Financial statements are a one tool you can use to evaluate the financial position. You can also use other methods as well. Many aspects like marketing and sales, production, stocks and human resources can be used to evaluate the financial position of your company. You can select one of the audit firms to do a report on your production and the stocks available. And you can cross check that with the sales and marketing teams. If you are having too much of left over stocks and you are spending too much for marketing of the products, you can see there is a slight problem. These can only be found if you look beyond the financial statements. Also human resources is the key element of improving a company. You need to keep track of your employees and check whether their skills are utilized properly. Most companies would just hire graduates to do clerical work but if you look closely you can pick couple of them to provide innovative ideas and help the company.
Look out for the cash flow
Cash flow of the company is another key to evaluate the financial position. Cash flow is the difference between the earnings and the spending. But the difference is you only account the real cash inflows and outflows. If this is a positive value then your company is going in the right direction. But if it is a negative which means your cash outflow is too much and you need to find ways to balance it.