How to Use Financial Statements

How to Use Financial Statements to Improve Business Performance

Many businesses rely on accounting software such as QuickBooks to manage their finances and generate financial statements like the balance sheet and income statement. But simply having these reports isn’t enough. Understanding how to use financial statements is essential for monitoring the health of your business and making informed decisions that support profitability and growth.

If you’ve ever looked at your financials and thought, “What am I supposed to do with this?”, you’re not alone. The key is knowing how to interpret the data and use it to drive strategic action.

Why Your Financial Statements Matter

Managing a business requires more than just tracking revenue and expenses. Financial statements provide a snapshot of where your business stands and how it’s performing. When reviewed regularly, they can help you:

• Measure profitability

• Identify operational inefficiencies

• Manage risk

• Plan for future growth

The two primary tools you’ll use are the balance sheet and income statement.

How to Analyze Your Balance Sheet

A balance sheet shows a company’s assets, liabilities, and equity at a specific point in time. It helps evaluate liquidity, asset utilization, and debt levels.

Liquidity

Liquidity measures your company’s ability to meet short-term obligations. The current ratio (current assets ÷ current liabilities) indicates financial stability. A current ratio of 2 or more is generally considered healthy and signals that you can meet obligations like payroll, vendor payments, and short-term loans.

Asset Utilization

Assets should contribute directly to revenue generation. The asset turnover ratio (revenue ÷ total assets) reflects how efficiently your company uses its assets. A higher ratio means your business generates more revenue per dollar of assets.

Debt Management

The debt-to-equity ratio measures how much debt your company carries relative to equity. A high ratio could indicate over-reliance on debt and potential financial risk. Lower ratios generally reflect a more stable capital structure.

How to Analyze Your Income Statement

An income statement (or profit and loss statement) shows your business’s revenues, expenses, and net income over a specific period. It provides insight into revenue trends, expense management, and profit margins.

Revenue Trends

Reviewing revenue over time helps you spot patterns and shifts. Comparing the current period to the same period in previous years gives you meaningful context. Evaluate each revenue stream to identify your most profitable products or services—and those that may not be covering their costs.

Expense Management

Regularly analyzing expenses helps you uncover areas where you may be overspending. Look for opportunities to reduce costs without impacting operations. Clear visibility into where your money goes allows you to improve efficiency and prioritize spending that supports growth.

Profit Margins

Profit margin is the percentage of revenue that remains after covering all expenses. Improving your margin can be achieved by increasing prices, reducing costs, focusing on higher-margin offerings, or scaling operations more effectively.

Monthly Financial Review Drives Smarter Business Strategy

Consistently reviewing your balance sheet and income statement gives you the insights needed to set goals, make improvements, and avoid costly missteps. These statements aren’t just historical records—they’re tools for creating a roadmap toward your business objectives.

Let Aligned CPA Help You Make Sense of Your Financials

If you find yourself unsure how to interpret your financial statements or what to do with the information, Aligned CPA can help. Through our Virtual CFO Service, we provide education, clarity, and strategic financial guidance to support your growth goals.

There’s still time to make 2025 your best year yet. Let’s build a plan together—starting now.

Contact us today to learn how we can support your financial strategy and help your business thrive.

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