What is financial reporting?
In order to have a global overview of the financial situation of a company on a regular basis, it is highly recommended to create a financial report. As much appreciated by the management as by the investors, this document is a precious help on several levels. What is the definition of a financial report? How to create it? Why set it up? What is the interest of automating its creation?
06 December 2022
What is financial reporting?
This document gives a global vision of the financial health of a company. It can concern a monthly, quarterly, half-yearly or annual period. Indeed, you will have to proceed to the recovery of data resulting from several services such as:
Essential for the company's management controller or accountant, financial reporting can also be of interest to a potential investor, for example. Once the definition of a financial reporting has been established, we can then notice the benefits of this document and how it can be created within a company.
What is the information that can be found in it?
As previously mentioned, financial reporting is based on information specific to several departments of the company. It is therefore customized according to the company, its departments, and its operations. Indeed, the challenges of the structure are also considered, which can completely change the way the data is handled. Some KPIs (Key Performance Indicator) can be expected more than others such as:
- Revenue: it reflects the level of the company and can be compared to a previous turnover to measure the evolution
- The gross margin: it gives an idea of the company's profitability
- The percentage of sales in relation to a target
- The ranking of important elements for the company (best customers, best products, etc.)
- The solvency of the company
- The break-even point or the minimum turnover to be sustainable
- The working capital requirement which means the cash flow required to bridge the gap between current expenses and customer receipts
- The average collection period for accounts receivable which means the number of days for customers to pay their debts
If a company wants to create a financial reporting, it will therefore have to define the KPIs it wishes to refer to in its documents.
Why should you automate the process?
Financial reporting has the particularity and advantage of being automated. Indeed, the collection of data necessary for its creation is automatically done thanks to a dedicated tool. Thus, it does not require the intervention of a person, which would be very time-consuming to collect the necessary data. Valuable time is thus saved, particularly in data processing, and the risk of error is minimized.
The reports are available quickly, which makes it possible to benefit from real-time information since the processing time between the collection of data and the delivery of the document is largely minimized thanks to automation. Employees who would have been responsible for data collection can now devote themselves to other tasks. It is therefore in a company's best interest to automate the production of this document.
How to create a financial report?
The creation of a financial report can be done in different ways depending on the tools you have.
Frequently used by companies, an Excel file remains one of the methods to create a financial report. However, this solution can quickly reach its limits. As automation is not possible in certain specific cases, you will have to import, classify, and enter the various data you want to add in the document. This task can be very time-consuming, with an increased risk of error.
Nevertheless, the rendering and readability can be very questionable. This makes the Excel file a rather temporary and punctual solution that can be changed by dedicated tools.
The dedicated tool
There are dedicated tools for the creation of financial reporting. As a single solution or integrated into more global solutions, there are business intelligence software. A BI software will be able to perform several tasks in a totally automated way, such as:
- Data collection
- The creation of a personalized dashboard in real time
- The share of reporting
- Centralize and analyze the necessary elements
- Confront several data between them
This solution allows the company to save time, to assign staff to other tasks and to have a reliable document at regular periods in order to build its future development strategy.