In the real estate industry, analyzing your financial statements is vital to the success of your company. It provides the picture of your company’s health and any areas needing special attention. Companies can manage liquidity, debt and profitability by focusing on what the numbers are saying. Companies can explore ratios and industry benchmarks as a tool to empower them to make better financial decisions. At the least, the financials should be analyzed in
1) Liquidity – measures the company’s ability to meet obligations as they come due. Are you generating solid cash flow from operations at this time, and cash flow relative to sales? This will demonstrate effective management of both the balance sheet and income statement with regards to cash. What are your general liquidity conditions? A company’s strong liquidity position relative to its industry can turn into a competitive advantage.
2) Profitability – measures whether the trends in profit are favorable for the company. The company’s operating range in comparison to its cost structure states whether it has the ability to push sales and profits higher in the future, which is not always easy to attain. It also allows the company to move money (profits) back into the company and improve future profitability taking advantage of its strategic position against the competition.
3) Sales – measures how sales are growing and whether the sales are satisfactory for the company. For a real estate company, the fixed assets can help drive sales higher and will determine, to a large degree, the level of profit. For instance, a real estate leasing company will generate profit depending on how well it leverages the rental of its buildings.
4) Borrowing – measures how responsibly the company is borrowing and how effectively it’s managing debt. Consider the amount of earnings relative to the cost of your debt. Borrowing has great power under the right terms.
5) Assets – measures how effectively the company is utilizing its gross fixed assets. A company should use its fixed asset base to produce sales.
It is beneficial to have a CPA that utilizes third-party software to provide real-time industry benchmarking to help you hone in on areas of the business where improvements could be made. Comparison of your numbers to other real estate companies in the state, region and nationally can help you see how you measure up to the competition. If you feel you could benefit from this type of service in addition to your annual engagement, we may be able to help. I95
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