Your banker will ask for your financial statements periodically, usually at least annually. The most common statements Banks ask for are the Balance Sheet and Profit and Loss Statement.
The Balance Sheet reflects your company’s assets, debt obligations, and its net worth (equity) at a specific date in time. Taking the time to review your company’s balance sheet helps you and your banker have a clear picture of the health of your company. The Bank will look for positive net worth, and the ratio between liabilities and equity. Analyzing the balance sheet helps the Bank determine whether your company can handle its current and/or future debt obligations.
The Income Statement or Profit and Loss Statement illustrates how much revenue your company earned over a period of time, and how much was left after expenses are paid (Net Income). Analyzing this statement can help you as an owner determine if there are potential areas to control costs or identify areas that seem out of line.
With the Balance Sheet and Profit and Loss Statement in hand, your banker will calculate your company’s Net Worth and ability to pay back debt (aka the Debt Service Ratio), both of which are critical to determining if the Bank is able to lend to your company.
The benefits of understanding your company’s financial statements include optimizing your company’s operations, increasing profits, preventing fraud, and helping to plan for the future. As you and your banker review these statements over time, you can note trends which may help you ask the right questions, identify new strategies to maintain growth, or adapt your business model.
To learn more, please contact Ann Arbor State Bank to set up an appointment. We are happy to discuss your company in detail.