Tips for making a financial diagnosis of your company
Posted: Mon Jan 06, 2025 5:18 am
You know that wise grandmother's advice that says that, every so often in your life, you should stop, savour the moment, take stock, enjoy the achievements, learn from the failures... and move on? It's a lesson we forget too often, living as we do in a society that keeps us constantly busy. And it's a lesson that you should not only apply to your personal life, but also to your own company by carrying out the relevant inventory and the subsequent financial diagnosis.
But let's start at the beginning: what exactly is a financial diagnosis? We could say that a financial diagnosis is a method for determining the financial situation of a company by analysing the information provided by accounting. This information will clarify the levels of debt, liquidity, profitability and the financial break-even point.
It sounds easy, right? But if you've ever taken the time to do the balance sheet in your company, you've probably noticed that taking inventory is anything but a simple activity... That's why here are a handful of tips to ensure that your company's financial diagnosis is completely impeccable.
What should every financial diagnosis consider?
As explained above, the objective of any financial diagnosis is to determine the financial situation of the company using concepts such as debt, liquidity, profitability and financial balance. But how to reach these concepts? To begin with, by carrying out a detailed analysis of the company's own environment in order to identify, on the one hand, the opportunities that can drive the business into the future and, on the other, the threats that can cut off that progress.
To do this, every inventory must be canada number data structured based on the detection, isolation and definition of a whole set of internal strengths and weaknesses: the former to be enhanced, the latter to be mitigated as far as possible. This is the only way to have a clear idea of what a company's path should be towards its ideal future.
What indicators to use in your inventory?
They have already been mentioned twice in this article: debt, liquidity, profitability and financial balance. These are the indicators that any financial diagnosis must use… But what exactly is each of them?
Liquidity ratios, for example, quantify a company's ability to generate cash with which to meet commitments and obligations in the near future. These liquidity ratios are what determine whether a company has a financial base that is solid enough to meet short-term debt payments.
Debt ratios, for their part, determine the company's ability to finance its operations and investments with its own capital. In other words, is the company's equity strong enough to cover its obligations?
Profitability indicators indicate whether or not a company can last over time. Is your company's future sustainable? It probably depends on how effectively it manages costs and expenses.
And finally, efficiency indicators will help the company measure the effectiveness of its resource management. Because, after all, only an efficient company is able to pass an inventory process with flying colors.
What stages should every financial diagnosis follow?
Every financial diagnosis requires a preliminary stage that serves to determine the objective of the analysis to be carried out. But not only that, it is also essential to be clear about other surrounding concepts such as the essential information to carry out this analysis and the degree of precision that will be sought in it. For the latter, the most effective thing is to establish some very solid analytical indexes.
Once everything has been defined, it is time to move on to the formal analysis stage, which is the quantitative aspect of the inventory. It is at this point that a whole set of techniques and tools must be created and implemented to achieve the desired objectives. Calculations, graphs, conceptual maps... Decide which tools these are depending on the needs of your own company.
Finally, the financial diagnosis must end with a stage of real analysis in which the quantitative aspects of the previous stage become qualitative. In this way, it is necessary to study the information obtained in the formal analysis stage, detect problems (and their relevant causes), establish judgments, look for alternatives, select the best ones and implement them. And then, rest assured that a job well done and the security of the future it provides.
But let's start at the beginning: what exactly is a financial diagnosis? We could say that a financial diagnosis is a method for determining the financial situation of a company by analysing the information provided by accounting. This information will clarify the levels of debt, liquidity, profitability and the financial break-even point.
It sounds easy, right? But if you've ever taken the time to do the balance sheet in your company, you've probably noticed that taking inventory is anything but a simple activity... That's why here are a handful of tips to ensure that your company's financial diagnosis is completely impeccable.
What should every financial diagnosis consider?
As explained above, the objective of any financial diagnosis is to determine the financial situation of the company using concepts such as debt, liquidity, profitability and financial balance. But how to reach these concepts? To begin with, by carrying out a detailed analysis of the company's own environment in order to identify, on the one hand, the opportunities that can drive the business into the future and, on the other, the threats that can cut off that progress.
To do this, every inventory must be canada number data structured based on the detection, isolation and definition of a whole set of internal strengths and weaknesses: the former to be enhanced, the latter to be mitigated as far as possible. This is the only way to have a clear idea of what a company's path should be towards its ideal future.
What indicators to use in your inventory?
They have already been mentioned twice in this article: debt, liquidity, profitability and financial balance. These are the indicators that any financial diagnosis must use… But what exactly is each of them?
Liquidity ratios, for example, quantify a company's ability to generate cash with which to meet commitments and obligations in the near future. These liquidity ratios are what determine whether a company has a financial base that is solid enough to meet short-term debt payments.
Debt ratios, for their part, determine the company's ability to finance its operations and investments with its own capital. In other words, is the company's equity strong enough to cover its obligations?
Profitability indicators indicate whether or not a company can last over time. Is your company's future sustainable? It probably depends on how effectively it manages costs and expenses.
And finally, efficiency indicators will help the company measure the effectiveness of its resource management. Because, after all, only an efficient company is able to pass an inventory process with flying colors.
What stages should every financial diagnosis follow?
Every financial diagnosis requires a preliminary stage that serves to determine the objective of the analysis to be carried out. But not only that, it is also essential to be clear about other surrounding concepts such as the essential information to carry out this analysis and the degree of precision that will be sought in it. For the latter, the most effective thing is to establish some very solid analytical indexes.
Once everything has been defined, it is time to move on to the formal analysis stage, which is the quantitative aspect of the inventory. It is at this point that a whole set of techniques and tools must be created and implemented to achieve the desired objectives. Calculations, graphs, conceptual maps... Decide which tools these are depending on the needs of your own company.
Finally, the financial diagnosis must end with a stage of real analysis in which the quantitative aspects of the previous stage become qualitative. In this way, it is necessary to study the information obtained in the formal analysis stage, detect problems (and their relevant causes), establish judgments, look for alternatives, select the best ones and implement them. And then, rest assured that a job well done and the security of the future it provides.