Troika Reporting – A group of three

There are a lot of catchy statements that try to emphasise what is contained in the financial reports of a business, like:

“Revenue is Vanity, Profit is Sanity, Cash is Reality”

Which as a finance professional I get, but in their own way they distract from what users of these reports should be looking at. Below I briefly describe the three critical reports for a business and their core importance.

The Profit & Loss Statement

Most of us who have been involved with a business, or investing, are familiar with the profit & loss. This is where a business shows how it is making a profit, which is important as it will allow for understanding the mix and scale of a business. It is often the key metric looked at and reported, but is only one third of the picture.

The Cash Flow Statement

Now for those who are more savvy, they will look to the cash flow to see if the business is bettering its cash position from its operations. “Cash is King” and when most first time business owners start, this is the core measure used. If the bank account balance is up, that is good, if it is down, that is bad. This is what the cash flow explains, just in a little more detail.

The Balance Sheet

One core fundamental of accounting is balance;

ying and yang;

for every action there must be an equal and opposite reaction;

Or as an accountant would say:

Debit and Credit.

The balance sheet is the silent partner in this trio of reporting, and by understanding it, you keep the others honest. The balance sheet can tell you if there are large costs that have been incurred that have legitimately not been shown in the profit & loss, making it look better. It can allow you to gauge if cash flow is positive, just because we have not paid our suppliers. Yet the balance sheet often gets little attention until it is too late.

So to ensure you really understand your business, make sure you fully understand the Troika of Reporting. And if you don’t, talk to someone who can help you along that path.

View Related Posts

Not-for-profit accountant

If you’re running a not-for-profit or charity, you need an accountant with expertise in not-for-profits. What should an accountant provide…

Read more