Financial Reporting

Numbers paint a picture, tell a story, reveal the truth. As such, it's critically important that your financial reporting is accurate, thorough, and up to date. As one of the minds leveraging those numbers, it’s your job, as part of the finance team, to tell that story and paint a picture that helps everyone better understand your company’s financial performance—all to get to the truth behind your organization’s total health. And one of the most important tools you’ll draw on to achieve that is your financial reporting. Financial Reporting Paints a Comprehensive Picture Built around three foundational documents—your income statement, balance sheet and cash flow statement—financial reporting provides a comprehensive picture of your business’s financial results and trends. Doing so helps you deliver insights and informs the decisions made throughout your company and beyond. Everyone from your executives, board members and department-level staff, as well as the regulators, creditors and stakeholders with a vested interest in your organization, rely on the numbers revealed within your financial reporting.  There’s a lot you can learn from the numbers in your financial statements. You just need to know how to look at them. And that starts with the following: What Is Financial Reporting? Financial reporting is a formalized view into your organization’s financial performance. The three most important financial statements for running your business are your income statement, balance sheet and cash flow statement. For public companies, financial reporting is a regulatory requirement with set deadlines in place, but both private and public companies also use it to keep key stakeholders informed as to a company’s current and future financial status. It empowers investors, executives and boards of directors as they assess their ongoing strategy and goals, make investment decisions and decide on any adjustments to the company’s ongoing trajectory. Your Core Financial Statements Three core statements make up the foundation of your financial reporting. Your income statement, balance sheet and cash flow statement provide a key piece of your organization’s story. They’ll become the base of the reporting you file for tax purposes and creditors, the documents you provide to regulatory bodies like the U.S. Securities and Exchange Commission (SEC) and the data you draw on for your Annual Report and internal documents, dashboards and reporting. The income statement, balance sheet and cash flow statement fit together to reveal a big picture view of your business. Here’s a brief description of each: What Is the Income Statement?  Your income statement, otherwise known as your profit and loss (P&L) statement or statement of earnings, tells you exactly what it purports—how much income you’ve got coming in or not. In other words, it shows you how profitable your business is based on the relationship between revenues and expenses. Your income statement outlines revenues and expenses and is used to measure your organization’s profits and losses during the reporting timeframe. In doing so, it helps measure the profitability of your business. What Is the Balance Sheet? Also known as your statement of net worth or statement of financial position, your balance sheet looks at your business’s total assets, liabilities and shareholders’ equity. It allows you to measure rates of return and demonstrates how your assets are financed—whether through debt or equity. Your balance sheet is a key document for shareholders, regulators and tax authorities looking to determine the health of your organization. What Is the Cash Flow Statement? Your cash flow statement provides critical data on how your money is being spent, where it’s coming from and whether there’s enough available to keep up with operating expenses and ongoing debt repayment. It tracks cash movement for stakeholders of all kinds—including investors and creditors, as well as your own team—and must eventually be reconciled to the bank to make sure you’ve covered all your cash transactions. Your cash flow statement can be prepared in two ways: the direct or indirect cash flow methods. Both calculate your net cash flow from operating activities. The main distinctions are the starting point, the types of calculations you use, and the level of detail in the information you disclose.   The 5 Types of Financial Ratios  Those three foundational financial statements provide you with the numbers you need to tell the story of your financial health, empowering you with key data both your internal and external stakeholders will draw on to establish critical insights about your business. But the numbers themselves are just the start—developing true insight starts with some basic calculations, otherwise known as financial ratios. Financial ratios enable you to perform quantitative analysis that lets you understand your organization better. There’s an entire list you can draw from to tell the story of your business better. All of them fall under one of five main categories: 1. Profitability Ratios determine your organization’s ability to generate profit relative to revenue, operating costs, balance sheet assets and shareholder equity. They do this by showcasing how much profit your company can gain from those assets. For example, return On Assets (ROA) measures your company’s efficiency in generating earnings from assets. 2. Liquidity Ratios measure your company’s ability to pay off its current debt without raising extra capital. Your Current Ratio, for example, looks at current assets in relation to current liabilities. This helps investors better understand your organization’s ability to pay off short-term debt obligations. 3. Efficiency Ratios calculate how well your business manages its assets and liabilities internally. Your Inventory Turnover Ratio, for instance, measures the rate at which your company turns over inventory in a specified period. Ultimately helping you better determine pricing and when to purchase new inventory. (Read more about boosting the efficiency of financial reporting in this post) 4. Leverage Ratios determine how much of your organization’s capital is assumed through debt and evaluate how reliant you are on debt for growth. Your Debt-to-Equity (D/E) Ratio, for example, calculates how much your equity is leveraged against your outstanding debt to determine how much of your business is financed through debt. 5. Market Value Ratios calculate your publicly held company’s current share price, helping investors evaluate whether those shares are overpriced or underpriced. For example, your Earnings Per Share Ratio looks at your company’s profit in relation to outstanding shares to let you and your investors know how much money your company earns from each share of its stock. Learn more about Vena Financial, Operational and Managerial Reporting  Of course, your financial reporting isn’t the only type of reporting happening in your organization. Management reporting (or managerial reporting) and operational reporting are just as important for building your business, moving your organization towards its goals and providing an up-to-the-moment picture of your day-to-day operations. They’ll help you better understand the root causes of your organization’s financial health. Let’s look at each in turn: Financial reporting As outlined above, your financial reporting looks at your financial results and supporting information. In doing so, it provides you with key data that informs your internal business decisions and is shared externally with shareholders, regulators, creditors and investors. As such, it needs to meet certain regulatory requirements and follow a specific format.  Management Reporting This isn’t regulated in the same way. That’s because, for the most part, your managerial reports are only used internally, for everything from your day-to-day decision making to Board of Directors reporting. You may choose to include forecasting or predictive data, segment down to different parts of the business or departments and incorporate an operational view for a fuller, more integrated picture of your business. Operational Reporting This shares the details of your organization’s day-to-day operations with data around such things as production costs, resource expenditures and the processes you have in place. How often you choose to report on each will depend on your organization. But the point is to concentrate on the short term and drill down into the areas that will provide the insights your company needs to operate day to day. Together, this reporting will tell a fuller story of your business and its needs. But keeping pace with those reporting requirements can be a challenge, especially when you consider standards such as the generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), which regulate your financial reporting and can be time-consuming for your team to maintain. GAAP and IFRS: The Financial Reporting Standards  Depending on the industry you work in, you may have unique reporting requirements you’ll need to adhere to—but two main sets of standards continue to regulate financial reports across industries. Whether you adhere to GAAP or IFRS will depend on where your company is listed and where your stakeholders operate. GAAP and IFRS are both designed to offer a set of general rules and guidelines for reporting and ensure everyone is working by a standard set of methods and definitions. Organizations working across borders or handling international mergers and acquisitions may be required to keep up with both. What is GAAP? GAAP stands for Generally Accepted Accounting Principles. GAAP is the standard set of rules for financial reporting in the U.S., GAAP, is adhered to by the U.S. Securities and Exchange Commission (SEC) and issued by the Financial Accounting Standards Board (FASB). GAAP covers topics such as retained earnings, revenue recognition, financial statement presentation, balance sheet classification, liabilities, foreign currency, transactions and so on. What is IFRS? IFRS stands for International Financial Reporting Standards. The IFRS Foundation and International Accounting Standards Board (IASB) is currently used in over 140 countries worldwide, including the European Union. It establishes a common language and standardized definitions across countries and continents, covering topics such as the presentation of financial statements, revenue recognition, employee benefits, fixed and intangible assets, etc.  Your Financial Reporting Timeline  Of course, the timing of your operational reporting and managerial reporting is up to you. And it will depend on your goals, processes, and the resources you have to draw from—financial reporting has a cadence of its own. For public companies, the timing of some filings are regulated by bodies such as the U.S. Securities and Exchange Commission (SEC). For others, they are set internally and will depend on your organization and stakeholder demands. Here’s a rundown of some of the key dates in your financial reporting timeline: Annual Reporting  What Is Form 10-K?  Produced annually, Form 10-K is an SEC filing required of all publicly held companies and designed to comply with specified guidelines. In addition to your audited financial reports, it includes detailed information on operations. It provides discussion points that help investors assess your business performance and the risks facing your company. When is Form 10-K Due? Due within 60 to 90 days of the closing of your fiscal year. What is an Annual Report? Your Annual Report is designed largely for shareholders and is often featured on your corporate website. It can be glossy, colored and dynamically designed and is usually an abbreviated version of what’s included in your Form 10-K. It features information on company activity and finances, including your balance sheet and income statement. When is an Annual Report Due? Usually published within three to four months from the end of your fiscal year. Quarterly Reporting What is Form 10-Q? Your 10-Q is filed quarterly to the SEC and is another standard requirement for publicly held companies. It offers a view of performance over the quarter that’s passed, with fewer details than Form 10-K and financial statements that are usually unaudited. It can offer insight into the changes your organization is experiencing and provide a timely sense of any legal risks that might be forming. When is Form 10-Q Due? Due within 45 days from the end of each quarter. What Is A Quarterly Report? Your Quarterly Report collects your ongoing, unaudited financial statements on a three-month cycle—including your balance sheet, income statement and cash flow statement. In addition to giving stakeholders a sense of your quarterly figures, it may also include year-to-date information and comparative data from past quarters. When Is A Quarterly Report Due? Usually shared a few weeks after the end of each quarter. Monthly Reporting What Is A Month-End Report? Your month-end reports help you stay on top of your financial performance and ensure everything continues to run smoothly. Done largely for internal use, monthly reporting doesn’t have the same external uses as the reporting above. This means the form and timeline it takes will vary based on your company’s needs. You’ll usually want to include your balance sheet, income statement and cash flow statement. But depending on your business may choose to supplement those with additional reporting, such as a bank covenant report, an analysis of inventory, your debt/EBITDA ratio, working capital analysis and so on. This monthly reporting helps facilitate ongoing decision-making and ensures you’re working towards your company goals. When Is A Month-End Report Due? Produced anywhere between a few days and a few weeks after the end of each month. Financial Reporting Challenges and Examples  Financial reporting is a basic requirement of your finance team. At the same time, it's clearly a critical part of business activities such as strategic planning, investor relations, taxes and SEC filings. But just because it’s so critical and pervasive doesn’t mean it isn’t without its challenges. Here are a few examples of common issues your team may be facing as you work to meet your financial reporting needs. Time It can be manual and time-consuming. Reporting can take a lot from your team, both in terms of time and effort. This is true even if you’re using software like Excel. As you push beyond what Excel was meant to be used for—from sourcing and manipulating your data to sharing your reports with applicable stakeholders in a variety of formats—it can start to get tedious for your team. It also drains the resources you have. More scalable technology and automation will help you get more value from your finance team. At the same time, cut down on the work spent on repetitive, manual tasks. Inaccurate There’s potential for inaccuracies. With all of that manual labor comes the chance for— even the inevitability of—mistakes. Those could come in the form of information that gets lost in translation. Or, they could be the result of data that is entered incorrectly. Whatever the reason, those mistakes can be more than just a nuisance. They can have serious repercussions on your final published results and the accuracy of your regulatory and stakeholder reporting. Incompatible Yes, the data your financial reporting offers will be integral to your organization’s success. But when it exists in a silo, it’s harder to apply to the deeper analysis you need. It can be incompatible with deeper analysis. By bridging your different types of reporting—and using technology that allows you to drill down into deeper levels of detail, apply real-time forecasting and visualize your data in various ways—you can start to build more powerful insights from your numbers. The right tools can help you improve your financial governance to build a more efficient and accurate process for your financial reporting—and ensure it’s offering you the chance to dive into the insights you need. Find out how Vena customer PRGX Global overcame their reporting hurdles.  Exploring the Numbers With Financial Dashboards Better tools can help you build a more efficient financial reporting process. At the same time, they will enable you to share your results organization-wide, so everyone is working towards the same goals. One such popular tool is the dashboard. Dashboards are a powerful snapshot of your business, made by tracking holistic metrics and KPIs—from financial and operational metrics to those that look at sales and marketing, HR and customer success. They communicate your performance against your strategies and values and track the ongoing health of your organization. They do this by pulling from many data sources—including your financial reporting data—to offer a single view. In doing so, dashboards help you leverage your data to drive your business forward, facilitate collaboration and transparency and communicate performance to your executive team and organization as a whole. They also empower finance teams to focus on key company metrics and help your entire organization better understand how those metrics affect its bottom line. When produced effectively and efficiently using the right technology, dashboards can provide transparency and access to your entire organization. What are the three key dashboards? The right dashboards will help you track and evaluate your entire organization’s financial performance—giving you more relevant and reliable visibility into the business’s health as a whole. And for many companies, that visibility starts with three key dashboards: 1. Business Health Dashboards: Business health dashboards evaluate both short- and long-term financial metrics based on your company’s short- and long-term goals. For full transparency and visibility, they should also include budget to actual variance analysis. 2. Employee Health Dashboards: Employee trends and behavior affect a company’s bottom line and, as such, are a vital measurement for finance teams. Effectively tracking and acting on employee health findings means working closely with HR and syncing HR data with financial data to determine what the numbers mean for your business. 3. Customer Health Dashboards: Measuring how existing customer relationships impact your bottom line can help sales and customer success teams understand where they should focus their efforts and resources. Customer health data also provide insight into the stability of your company’s customer service function. Read more about these three critical dashboards. Essential Financial Dashboard Metrics By offering ongoing financial data, dashboards help you keep on top of your organizational performance. They let you dig deeper into that data and connect it with your operational and management reporting, so you have a holistic, connected view of your business. At the same time, they make sure everyone is working off the same information and building towards the same business goals. So what financial metrics should you focus on as you populate those dashboards? These five: 1. Operating cash flow: This is a measurement of how much money your business brings in from its daily operations. Your operating cash flow offers insights into whether your organization is in a good position for growth. It also tells you whether you’ll be able to maintain a positive cash flow. 2. Operating expenses: These are the expenses your organization incurs through standard operations. They include rent, inventory costs, payroll, insurance, inventory costs, etc. Your operating expenses (OPEX) help determine where you might be able to make cuts during tighter times. 3. Net profit margin: This shows you how well your business is building profit compared to revenue and what percentage of each dollar earned is actually profit. Ultimately, your net profit margin determines how fast your organization is growing and how well it’s meeting long-term goals. 4. Working capital: By tracking available cash, short-term investments and accounts receivable, your working capital tells you how well your business can generate cash quickly. They also tell you whether you’re able to meet your short-term financial obligations. 5. Sales growth: By measuring your sales team’s ability to increase revenue over a certain period, sales growth offers insight into your organization’s profitability. It also offers insight into whether your business is growing or stagnating. Just as important as choosing the right metrics for your business is ensuring everyone has a clear definition of each and knows why you measure it. By putting everyone on the same page, you’ll keep everyone working towards the same goals. Learn more about how to use your financial reporting data to fuel operational success. The Benefits of Automating Financial Reporting  The right tools can help your team streamline your financial reporting and your managerial and operational reporting—and bring everything together through effective and meaningful dashboards. By automating repetitive manual tasks, you’ll also get more done in less time and free up your team to focus on analyzing the numbers, uncovering new information and shaping the strategic direction of your business. In doing so, automation can help you: 1. Better ensure accuracy and data integrity. You’ll be able to ensure your data is sourced accurately and nothing gets lost in translation or gets missed due to human error. 2. Make better, faster decisions. You’ll be able to turn your data into insights—and put those insights into action—faster. 3. Boost stakeholder satisfaction. Automation will help you get more accurate data and more powerful insights in front of your stakeholders more quickly. 4. Turn information into action. By automating the repeatable tasks, you’ll be able to spend more time developing actionable insights for your business. Automation can also help you build a better audit trail by creating a log of your data, workflows and processes. This gives stakeholders a lens into the data you pulled from and the calculations you performed and helps identify any potential errors that might have happened along the way. You’ll be able to highlight any red flags early and deal with them before they become more serious problems. All of which can help you up your financial reporting game. And, of course, getting to the truth behind the numbers faster and more effectively. Find out what other benefits you can gain by automating your financial reporting. Recap The Ultimate Guide to the New Corporate Budgeting Your corporate budget is the tactical side of your business plan, ensuring resources are allocated in a way that sets your business up to operate effectively, meet its growth goals and keep up with ongoing market demands. Aligning your budget with your business strategy and KPI and goal setting is critical to its success. Most budgeting processes take either a top-down or bottom-up approach, either beginning with a set amount and allocating resources across departments (top-down budgeting), or having departments prepare budgets and request funds based on their needs (bottom-up budgeting). Zero-based budgeting, driver-based budgeting and predictive budgeting can help facilitate and drive your budgeting process, depending on your business demands and the goals you want to achieve. Rolling forecasts can help maintain visibility into recent performance while better projecting future needs—allowing you to remain agile to new trends and requirements while continuing to move the planning horizon forward.

Numbers tell a story. We already know that: we’re all experienced data-driven storytellers here. But raw data, even after it’s been summarized in your reports, does not a full story make. Like the words of a novel, you’ll get more out of the values you report on when you start putting them together in new and meaningful ways.  That’s where financial ratios come in. By tracking changes over time, your financial ratios enable you:  See how performance shifts from one period to the next. Identify trends that could be in the works and set goals to track progress towards them. Allow your investors to compare your business to those of your competitors  Enable you to see how you're faring compared to market norms.  Find new lenders, set stock prices and demonstrate the overall health of your organization.  So what are the ratios you should be paying attention to—and what plot twists will they add to the story your reporting tells? Let’s take a look. Quick Links The Five Types of Financial Ratios Financial ratios enable you to perform quantitative analysis to understand your organization better. There’s an entire list of financial ratios you can draw from to better tell the story of your business—all of them falling under one of five main categories. Profitability Ratios Profitability ratios determine your organizations ability to generate profit relative to revenue, operating costs, balance sheet assets and shareholder equity.  Liquidity Ratios Measure your company's ability to pay off its current deby without raising extra capital. Efficiency Ratios Calculate how well your business manages its assets and liabilities internally.  Leverage Ratios Determine how much of your organization's capital is assumed through debt and evaluate how reliant you are on debt for growth.  Market Value Ratios Calculate your publicly held company's current share price, helping investors evaluate whether those shares are overpriced or underpriced.  Each category incorporates a range of different ratios designed to help finance teams, like yours, get to the information needed, and for investors and analysts to better understand the health of your business. Together, these ratios can begin to offer a fuller picture of your company’s performance. Explore our guide to financial reporting to help get a better understanding of your company's financial performance. Examples, Formulas and Use Cases The most popular financial ratios aren’t necessarily complicated to compute—in fact, what are often deceptively simple calculations can offer a wealth of meaningful information. Just look at these examples: Financial Ratio Example Formula Use Cases Profitability Ratios Profit Margin Gross Profit Margin = Gross Income / Revenue  Operating Profit Margin = Operating Income / Revenue  Net Profit Margin = Net Income / Revenue  By demonstrating what percentage of sales has turned into profits, your Profit Margin showcases the degree to which a business activity makes money. The numbers you plug in will vary depending on the type of profit margin being measured (i.e., Gross Profit Margin, Operating Profit Margin, Net Profit Margin). Return On Assets (ROA) ROA = Net Income / Average Total Assets ROA measures your company’s efficiency in generating earnings from assets by showcasing how much profit your company can gain from those assets. Return On Equity (ROE) ROE = Annual Net Income / Shareholders’ Equity ROE demonstrates how well your organization is handling shareholder contributions. It measures the profitability of your organization as it relates to stockholders’ equity. Liquidity Ratios Current Ratio Current Ratio = Current Assets / Current Liabilities By looking at current assets in relation to current liabilities, your Current Ratio helps investors better understand your organization’s ability to pay off short-term debt obligations. Quick Ratio Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities  By examining how easily your organization can use near-cash assets to pay down its current liabilities, your Quick Ratio measures your organization’s ability to meet its short-term debt obligations using its most liquid assets. Days Sales Outstanding (DSO) DSO = (Accounts Receivable / Net Credit Sales) x Number of Days Your DSO provides valuable information on your cash conversion cycle by measuring the average number of days it takes for your business to collect payment from a sale.  Efficiency Ratios Asset Turnover Ratio Asset Turnover Ratio = Net Sales / Average Total Assets The Asset Turnover Ratio demonstrates how efficient your company is at using assets to generate revenue. It examines the value of your company’s sales or revenue in relation to the value of its assets. Inventory Turnover Ratio Inventory Turnover = Cost of Goods Sold / Average Inventory By measuring how often a company has replaced inventory during a specified period, the Inventory Turnover Ratio helps you better determine pricing and know when to purchase new inventory. Receivables Turnover Ratio Receivables Turnover = Net Credit Sales / Average Accounts Receivable By measuring your business’s ability to collect the money you owe, your Receivables Turnover Ratio helps investors and analysts understand how quickly your short-term debt is collected and paid. Leverage Ratios Debt Ratio Debt Ratio = Total Debt / Total Assets Your Debt Ratio measures the ratio of total debt to total assets, which determines the extent of your business’s leverage or the percentage of assets financed by debt. Debt-to-Equity (D/E) Ratio D/E = Total Liabilities / Total Shareholders’ Equity By calculating how well shareholder equity can cover outstanding debt, your D/E Ratio helps determine how much of your business is financed through debt—and how prepared you are for a crisis. Interest Coverage Ratio Interest Coverage = Earnings Before Interest and Taxes (EBIT)  / Interest Expense Your Interest Coverage Ratio lets creditors, investors and analysts know whether your company is a good risk for future lending by measuring how easily your organization can pay interest on its outstanding debt. Debt-Service Coverage Ratio (DSCR) DSCR = Net Operating Income / Debt Service By looking at the cash flow your organization has available to pay your existing debt obligations, your DSCR lets investors know whether you have the income available to pay off your debts.  Market Value Ratios Book Value Per Share (BVPS)  Ratio  BVPS = (Shareholders’ Equity - Preferred Stock) / Average Shares Outstanding Your BVPS Ratio helps investors evaluate your business’s stock price by measuring the ratio between your shareholders’ equity and outstanding shares.  Dividend Yield Ratio Dividend Yield = Annual Dividends Per Share / Current Share Price By calculating, in the form of a percentage, how much your business pays out annually in dividends in relation to its stock price, the Dividend Yield Ratio enables investors to calculate how much they’ll earn from dividends. Earnings Per Share (EPS) Ratio Earnings Per Share = (Net Income - Preferred Dividends) / Average Shares Outstanding By looking at your company’s profit in relation to outstanding shares, your EPS Ratio lets you and your investors know how much money your company earns from each share of its stock, helping to create an estimate of your overall organizational value. What Else You Need To Know About Financial Ratios If you’re a finance professional tasked with reporting, you’re probably using financial ratios in some capacity already—and it’s exactly because they are so widely used that they’re so useful.  Financial ratios provide a common language. By trending your ratios over time, you and your investors can compare your company’s performance from one period to another, and against market norms and competitors. And by using the reported values already available in three key financial statements - balance sheet, income statement and cash flow statement, ratios also provide a relatively quick way to analyze your financial health. The richest stories come not from using a single financial ratio, though, but rather by applying a mix of ratios and using them alongside the other information available to you. That might include insights from your KPI dashboards or the information you gather from non-financial metrics across sales, marketing, operations and the rest of your organization. Either way, in doing so, you’ll reveal truths about your company’s performance—as well as the potential value your business might have for investors, creditors and lenders.  loading="lazy" Tools to Drive Your Business Forward Vena automates financial reporting processes so you can collect and analyze data to make smart, data-driven business decisions.

Climate change, an exploding housing market, and the aftereffects of the pandemic are all contributing to unpredictability in insurance markets. With potential economic stresses putting a strain on capital reserves and liquidity, insurers are under pressure to deliver for stakeholders and consumers. “Optimizing cost structures and strategically prioritizing investments” is critical write analysts in EY’s 2022 Global Insurance Outlook.   Unfortunately, many insurers are not as prepared as they could be. A recent Deloitte global insurance outlook survey found that 79% of industry executives agreed, that “their insurer has been challenged to plan for and invest in targeted areas where they can have a competitive advantage post-COVID-19”. However, only 25% believe their companies have a “clear vision and action plan to achieve financial resilience.” Now that insurance firms have survived the pandemic, they must pivot to thrive.  To thrive, you must have clear insight into your finances and make mission-critical decisions driven by real-time, continuously updated KPIs. This is where an insurance dashboard can really help.  What Is an Insurance Dashboard? KPI dashboards provide instant and real-time access to all your critical financials. They deliver both raw data and visualization, reporting, modeling and analysis, providing you with a clear view of your numbers and deeper insight into those numbers.  But insurance dashboards are only as good as the financial KPIs they include. While some data is intriguing, it might not be informative. You don’t have time to waste on interesting data that provides little insight into your company’s financial situation or fails to inform company strategy. Focusing on the data that provides you with an understanding you can leverage is crucial to your growth and success. Here are 15 financial KPIs every insurer should be including on their metrics dashboard.  1. New and Renew Gross Written Premiums Tracking written and earned premiums provides a clear picture of past, current and future revenue in the short term. This is a critical component for assessing your revenue and plotting future growth. This metric should include: Gross written premiums which are your total premiums before deductions for reinsurance and ceding commissions. These premiums are not necessarily collected premiums, but rather the gross policy premiums you have contracted with clients. These gross earned premiums  account for the revenue you’ve already earned or the expired portion of the insurance contract. Ceded written and ceded earned premiums that you’ve contracted out to other insurers.  Net premiums which provide insight into how much of your premium revenue your company will get to retain for the risks you assume as an insurer.  Unearned premium reserves can tell you, at a glance, how much you would lose if all outstanding contracts were canceled.  2. Losses and Loss Ratios Losses and loss ratios allow you to estimate losses and determine the size of your loss reserves. The gross insured losses you have accumulated, ceded incurred losses and any adjustments you make to your loss reserves should be tracked to provide comprehensive insight into actual and potential losses. Loss ratios will show you how your premiums stack up against your losses and tell you how these numbers are trending in real time.  These KPIs should also include your gross incurred losses or the total amount of paid claims and loss reserves at any given time. Finally, your ceded ratio—ceded insurance balances measured against policyholder surplus—will help you visualize just how reliant you are on others assuming your portfolio risks.  3. Commission Rates  These KPIs help you identify top performers in sales, but you can also use these numbers to compare against industry averages for similar businesses.  4. Ceding Ratios  This KPI provides insurers with a clear understanding of their risk related to reliance on ceded or reinsured policies. You can see just how reliant you are on ceding policies and whether you are too dependent upon a single reinsurer for your portfolio of ceded policies.  5. Ceded Recoverables Also known as reinsurance recoverables, this KPI helps you understand how much reimbursement you can expect from your contracted reinsurance companies. This can include paid and unpaid losses and loss adjustment expenses, such as amounts you may receive for unsettled or unreported claims.  6. Average Weighted Commission Strategizing for the future involves both actual and projected numbers. Average weighted commission rates apply calculations of the estimated chance of closing opportunities to all of your open opportunities, helping you understand what you stand to earn from potential sales opportunities.  7. Net Claims Change in Case Reserves Case reserves are an estimate for the amount that you can expect to pay for a specific claim. Underestimating or overestimating case reserves can pose problems for insurers, so having eyes on the net claims change in case reserves is critical.  8. New Policy Applications As a measure of sales growth, this KPI informs you, at a glance, exactly how many potential new sales you have in the pipeline. 9. Number of Renewed Policies   In addition to new policy applications, you will want to monitor the number of policies renewed by existing clients. This KPI is a good indication of customer experience.   10. Decline Rate This KPI tracks the number of rejected claims and rejected policy renewals against the number of received applications and renewals and presents it as a rate.  11. Average New Policy Premiums  An informative and easily understood KPI, this metric illustrates the average premium rates for new policies sold over a period, such as per quarter or annually, and is key for strategizing growth. 12. Policies for Renewal How many policies have reached expiration and are eligible for renewal is a critical KPI to track for informing sales and customer service initiatives and decisions.  13. New Business Premium  This is the premium acquired from new policies for a specific amount of time. It’s a way to measure and track expansion or growth and the potential for scale.  14. Renew Retention Ratio This KPI tracks the ratio of policyholders renewing policies to those who opt to end their contracts. This is another excellent measurement of customer satisfaction.  15. Quota Share Ceded Premiums Another indicator of risk exposure and potential profit, quota share ceded premiums KPIs provide you with a measurement of the premiums you can expect to retain from your reinsurance agreements.  Track the Right Metrics  Making data-driven decisions is a key success indicator, but it can be a challenge to know what to focus on with the wealth of available data. Tracking the right financial metrics is crucial to the success of your insurance business, helping to maximize output, fuel growth and ensuring that you pivot, when needed. It’s also critical to providing shareholders and other key stakeholders with the visibility they demand. By focusing on key metrics or KPIs, you will have access to effective and efficient mission-critical data when you need it.  Ready to start your own growth journey?

Can you ever have too much data? The answer, of course, is yes—especially when that data is poor in quality or isn’t contributing to your overall goals. But meaningful data is an asset to any organization. And when applied well and shared appropriately, the data you extract from your financial reporting will join those ranks—helping to fuel your business decisions and organizational alignment through the months and years to come.  Whether you’re keeping your investors informed, bringing shareholders up to speed or paying your taxes, you’ll of course draw on data from your financial reporting for external use. But you’ll use it internally as well, to unearth key operational insights that help your entire organization identify inefficiencies and work together towards your business goals.  To achieve that type of insight, though, you need to know how to use your financial reporting to recognize when the reallocation of resources or introduction of new investments are required—and when they’re critical to your business’s success. You’ll also have to connect the rest of your company to the data and insights your financial reporting reveals, so that everyone has a clear understanding of your organization’s financial state and the next steps you need to take to achieve your business goals.  By doing so, you can start to take a holistic approach to operational change—both at the organization-wide level and across every department. To get there, start by considering the following: 1 Building operational insights 2 Aligning your entire organization Building Operational Insights for Organizational Success Your financial reporting provides key data that will help you identify and inform the operational changes you make—but only when you put it to use. Through the application of financial ratios, scenario modeling and other tools, you’ll begin to reveal critical insights that help identify potential inefficiencies or red flags that could mean problems if not addressed. Those insights will play a critical role as you move your business forward. With that in mind, consider four ways your financial reporting can help fuel your operations and put you on the right path to organizational success. 1. Understand Your Baseline How much profit are you making per unit sold? How reliant is your business on debt? What’s your operating margin? Details like these will help you create a baseline of knowledge around your company’s overall health, which will fuel your business strategy going forward.  By comparing your operating income with sales and tracking it over time, for instance, your operating margin—how much your organization is making from its core business—will help you understand profitability trends over time. Thisin turn may show you where to dive deeper and examine your cash position. You’ll be able to see whether your pricing strategy is working and the overall operational efficiency of your business. All of which will let you know when you need to shift your strategy or make operational changes to maintain profitability and stay on the path to growth. 2. Determine How Well You’re Managing Growth and Decline By measuring your revenue over time, you can begin to identify whether you’re in a position of growth or decline, while comparing your gross profit to sales over time will allow you to see whether cost increases are outpacing revenue gains. This type of data will help inform your growth strategy or determine whether the growth plan you have is sustainable or not.  Comparing your financial data over time will also help you pinpoint variable and fixed expenses in your organization—information that will allow you to make better decisions on spending and debt. There may even be a scale of efficiency (or inefficiency) when demand exceeds capacity—achieving a better understanding of that will also help you manage your growth plans.  3. Reveal How Much Cash You’re Generating Through Operations  By showing you how much cash flow is coming into your business through operations, your financial reporting adds clarity on the sustainability of your organization and the pace at which you can self-fund growth. (This is where the direct cash flow method is particularly revealing, offering details that aren’t available using the indirect method.) There may be a good reason to run a negative cash flow for a period of time, but it’s not something your business will be able to sustain forever. Rather, it’s best to use your cash flow to ensure your receivables stay healthy and your cash position high. If you are cash rich, on the other hand, you might use your cash flow to understand excess liquidity so that you can put it to work—funding growth or initiatives internally or perhaps even looking for external investment paths. 4. Better Plan for the Future Finally, you can also use the data in your financial reporting to build comparisons against planned scenarios—including budgets, forecasts and what-ifs—to make sure you’re realizing your business’s full ambitions. Through the wealth of data you’ve gathered, you’ll be able to stay on top of future scenarios and better understand the levers you can pull to adjust your course for improved operational efficiency and optimized business growth. Forecasting and scenario modeling can help your organization build towards its strategic plan and stay on track and aligned. By helping you see ahead, they’ll ensure you remain ready for future change and enable better informed business decision making every step of the way.   But when you’re doing all of this to create real operational change, it helps to take a team approach. And that means sharing that information with the rest of your organization.   Aligning Your Entire Organization Around the Information You Reveal  Drilling down into the data your financial reporting provides is only the first step. Step two is putting that information into action. And for many organizations, that means sharing it. Research shows that 87% of CFOs share financial information with at least some of their employees.  Sharing your financial insights can help build organization-wide alignment and increase accountability throughout your company, while enabling individual departments to plan for any operational changes that need to be made. But there are a few things to consider as you get your whole organization involved in your financial numbers:  Be careful what you share. You shouldn’t—and can’t—just release your financial statements organization-wide and be done with it. First of all, not everyone in your company will be proficient at reading financial statements or the data within them. But insider trading rules may also mean you can’t disclose everything in your financial reporting, and privacy concerns will leave financial teams closely considering what they should release (many choose to keep salary information under wraps, for example). Consider both before you go wide. Offer context. Putting the numbers into context will help your employees and department heads understand the value the data brings—and let them see what the story is telling. That’s where the work you’ve already put in comes in handy. The amount of profit your company has made per unit sold, for instance, may be more relatable and actionable for your organization than overall profit, while profitability trends can let departments know where and how to allocate their attention and resources. Fill in the details. Additional reporting—including Department/Cost Center Reports, Customer Profitability Reports, Product Line or Location Profitability Reports and Inventory or Receivables Health Analyses—will allow you to apply the data from your financial reporting in a way that further reveals tangible insights directly applicable at the department and team level. This type of reporting goes a long way in giving departments their own baselines for budgeting and spending. By providing your team with a quality source of data alongside the context they need to put it into action, you’ll help everyone in your company better drive their part of the business. This puts them all on the same path towards optimizing company performance—whether that means making operational cuts or shifts in investment or better planning for growth ahead. In doing so, the data shared in your financial reporting can serve as a lens: helping you pinpoint operational inefficiencies, reduce costs and align your entire business. All of which will lead your organization to a more successful future.  Get more from your financial report with Vena. Drive smarter, more data-driven business decisions with numbers you can trust.

10-Q. 10-K. 8-K. 13D.  The list of SEC filings you’re expected to complete can start to sound a little like the calls in a football game—and can be just as indecipherable if you’re an outsider. But for those finance professionals focused on reporting at a publicly held company, they’re a regular part of the office lexicon. And if that’s you, you’re likely already well acquainted with them—from Forms 10-Q, 10-K and 8-K, to Schedule 13D. After all, the U.S. Securities and Exchange Commission (SEC) expects you to be. One of the most critical of those filings is Form 10-K. An annual SEC-mandated report, the 10-K offers a summary of your company's financial performance. Depending on the size of your company, it must be filed within 60 to 90 days of the closing of your fiscal year. While usually lengthy and time consuming to complete, it plays a vital role for investors—providing them with comprehensive information around the health of your business. It’s therefore a key piece of your SEC reporting. So what do you need to know when completing your Form 10-K? Start by considering the following: 1 What is corporate budgeting? 2 How do you align your budget? 3 Corporate budgeting best practices 4 How do you prepare a master budget? 5 Top-down vs. bottom-up budgeting 6 Zero-based vs. traditional budgeting 7 Driver-based and predictive budgeting 8 Rolling forecasts vs. static budgeting Recap The Ultimate Guide to the New Corporate Budgeting Your corporate budget is the tactical side of your business plan, ensuring resources are allocated in a way that sets your business up to operate effectively, meet its growth goals and keep up with ongoing market demands. Aligning your budget with your business strategy and KPI and goal setting is critical to its success. Most budgeting processes take either a top-down or bottom-up approach, either beginning with a set amount and allocating resources across departments (top-down budgeting), or having departments prepare budgets and request funds based on their needs (bottom-up budgeting). Zero-based budgeting, driver-based budgeting and predictive budgeting can help facilitate and drive your budgeting process, depending on your business demands and the goals you want to achieve. Rolling forecasts can help maintain visibility into recent performance while better projecting future needs—allowing you to remain agile to new trends and requirements while continuing to move the planning horizon forward. Terminology What is Saas? Software as a Service (SaaS) is a relatively new software distribution model giving customers access to applications over the internet, rather than requiring a physical media and custom installation. SaaS products are centrally hosted by a provider, who also maintains and updates the software automatically. Customers access and use them via the web and mobile browsers. Terminology What is Saas? Software as a Service (SaaS) is a relatively new software distribution model giving customers access to applications over the internet, rather than requiring a physical media and custom installation. SaaS products are centrally hosted by a provider, who also maintains and updates the software automatically. Customers access and use them via the web and mobile browsers. Terminology What is Saas? Software as a Service (SaaS) is a relatively new software distribution model giving customers access to applications over the internet, rather than requiring a physical media and custom installation. SaaS products are centrally hosted by a provider, who also maintains and updates the software automatically. Customers access and use them via the web and mobile browsers. What Is a 10-K Financial Report? While it shares some overlapping information with your Annual Report, Form 10-K is a separate document required by the SEC—generally containing more detail than your Annual Report. If your company is public, you’re required to file the 10-K annually so that investors can better understand your business’s investment potential. To facilitate that, your 10-K will be made accessible alongside those of other businesses in the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database.  Signed by your CEO, CFO and controller or chief accounting officer to validate its accuracy, your 10-K is broken down into four unique parts. Here’s what they each looks like and some of the more prominent elements you’ll need to include: Part I is where you describe your business: the products and services you provide, any subsidiaries you operate and the market you work in. It also includes: A list of risks you’re facing The properties you own  Information on ongoing lawsuits Any discussion of unresolved comments you’ve received from SEC staff on previous reports Part II is where you disclose any information regarding your company’s equity securities—including market information, number of shareholders, dividends and so on. It also includes: Select financial information from the last five years  An analysis of your business results over the past year Your exposure to market risks Audited financial statements, with written explanations Information on your company’s disclosure controls and procedures 3. Part III is all about the people who make your business happen and ensuring they’re kept accountable. It’s where you list: Your directors and executive officers, with information on their backgrounds Your company’s code of ethics  Compensation policies Compensation paid to top executive officers over the past year Any information on shares owned by directors, officers and stakeholders Any relationships and transactions between your organization and its directors, officers and their family members  4. Part IV compiles any exhibits and documents, such as your company’s bylaws, list of subsidiaries and so on. There’s clearly a lot you need to put in place to get your 10-K up to code. But there are a few best practices you can apply to make sure you remain on schedule and compliant and to ensure your 10-K is investor-ready and telling your company’s full story by the time you need to submit. Three Tips for Completing Your 10-K  1. Consider It Through an Investor’s Eyes Form 10-K is a critical piece of disclosure with a list of inclusions you’re required to submit. Ultimately, what you include is there for a reason, though—to inform investors and give them information they may not find in your Annual Report. Your 10-K helps build the story you’re telling about your organizational health and allows investors to make better decisions on where they should put their money. And while it must follow specified SEC standards so that it’s easily comparable with other organizations, there is room to share your story more completely in the commentary you offer. Use that commentary to address any concerns investors may have, putting yourself in their shoes and remaining transparent on any potential red flags that might exist. This is your chance to give them a better sense of those risks and challenges—whether they’re within your control or not and whether they’re long term or short term in nature. 2. Pay Close Attention To How Your Business Has Changed Most financial teams will use last year’s 10-K report as a starting point for the new year’s version and go from there—but you should also take some time to recognize the changes your company has gone through in between. After all, those changes will play a big role in the story unveiled through your financial reports and may become a focus for investors as a result. So start with that as you frame the narrative you build, using those changes as a point of entry to drive your explanations and disclosures. In doing so, you’ll give investors a better understanding of where your company is in terms of its performance and why those changes happened—whether they were due to an acquisition, a shift in financing, market changes or something else completely.  3. Take a Team Approach As your organization grows and there are more stakeholders involved, the process of gathering all of the information needed for regulatory reporting becomes even more complex. Automation and technology, then, become more and more helpful in accumulating that information. But people are still as critical as ever. Data and commentary contributors, accounting policy teams, legal experts, senior management and internal and independent auditors are just some of the people who may be contributing to the process. You may start out with your core finance team and auditors but also have reviewers across the business looking at specified sections depending on their expertise.  Taking a team approach, with multiple voices involved, will get you a full range of ideas on the details you convey and add multiple sets of eyes when it comes to ensuring your reporting is complete and accurate. To achieve alignment and make sure nothing falls through the cracks, you’ll also need strong communication, clear leadership and established roles assigned to everyone on your team. (Check out The Ultimate Guide to Financial Reporting to help you better understand your company's financial performance.) Putting the Right Checks and Balances in Place As with any kind of regulatory reporting, having the right checks and balances in place is key to a successful 10-K. Your accounting and legal teams should give it a thorough evaluation to ensure all of the information is accurate, consistent and complete, and that it meets SEC requirements. Keeping up to date on SEC guidelines and maintaining a checklist to ensure you’ve compiled all of the information you require will also help. The right technology, meanwhile, can make it easier to keep up with your reporting needs by compiling data into a central location, providing version control and ensuring you’re pulling the most recent data available. But of course, the 10-K is just one of multiple forms the SEC requires from you. So even after it’s been checked and double-checked, don’t stop there—there’s still plenty left to do. The information you’ve already compiled, though, will make your 10-Q, Annual Report and other external reporting all the easier to complete. Meet All of Your Regulatory Deadlines With Time to Spare Our software consolidates your financial, HR and operational data into one central location so it’s easy to find the data that matters.

This post was first published in 2020 and updated on December 8, 2021. It may not always get the most love, but your cash flow statement is a vital part of your reporting story. That’s why, in this post, we’re going to talk all about choosing the best cash flow method for your business. Among the main trifecta of financial reports—the balance sheet, income statement and cash flow statement—it’s often the statement of cash flow that gets the least attention and time. But as a view into your company’s liquidity, it provides an important piece of the puzzle.  And extracting the information you need? This begins with putting the right process in place to build the best cash flow statement for your business—in whatever time you have. That starts by choosing between the direct and indirect cash flow methods. 1 Calculating Cash Flow 2 The Direct Method vs. Indirect Method 3 How to Choose Between Them 4 What Else You Need to Know Calculating Cash Flow A mandatory part of your organization’s financial reports, the cash flow statement tracks cash movement for stakeholders of all kinds. This includes investors and creditors, as well as your own team. It must eventually be reconciled to the bank to make sure you’ve covered all cash transactions. It also provides critical knowledge on how your money is being spent, where it’s coming from and whether there’s enough available to keep up with operating expenses and ongoing debt repayment. Primary components of a cash flow statement To accomplish all of that, the cash flow statement includes three main components: Investment cash flow: Cash spent on investments your business has made, including equipment purchased.   Financing cash flow: Cash spent and earned on financing activities, such as bonds, stocks and dividend payments. Operating cash flow: Cash spent and earned on operating activities. (Here’s another post you don’t want to miss next: Cash Management: 3 Questions to Ask When Planning for Today and Tomorrow) There may be some disclosure of non-cash activities included as well. But it’s those three components that allow your stakeholders to infer whether your company is paying dividends, paying down their debt or accruing more, investing in capital and so on. Investors or lenders can also identify whether your company’s operating cash flow is smaller than your net income or whether you’re paying dividends to your investors from your operating cash flow or by accruing more debt. All of which is important if they’re trying to determine the overall health of your business. Operating Cash Flow While financing and investment cash flow are calculated using a standardized approach, methods vary for the third section of your cash flow statement: operating cash flow.  There, reporting guidelines require you use one of two methods: direct or indirect.  Either is acceptable according to the generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) guidelines. That being said, the direct method is encouraged. Still, each method has its pros and cons. Visit this post next to learn about balancing GAAP and IFRS with other reporting needs. The Direct Method vs. Indirect Method So what’s the difference between direct and indirect?  While both are ways of calculating your net cash flow from operating activities, the main distinction is the starting point and types of calculations each uses. The indirect method begins with your net income.  Alternatively, the direct method begins with the cash amounts received and paid out by your business. Each uses a separate set of calculations from there to get to the same finish line, revealing different details along the way.  Let’s look at each in turn. The Indirect Cash Flow Method The indirect cash flow method starts with your organization’s net income. It then makes adjustments to get to the cash flow from operating activities. Those adjustments consider things such as depreciation and amortization, changes in inventory, changes in receivables and changes in payables. Once you’re done with the adjustments, you end up with a final closing bank position. The benefit of the indirect method is that it lets you see why your net profit is different from your closing bank position. But because it’s based on adjustments, one of its disadvantages is that it doesn’t offer the same visibility into cash transactions or break down their sources.  Without that fine detail, there are insights you may be missing out on. The Direct Method The direct method individually itemizes the cash received from your customers and paid out for supplies, staff, income tax, etc. Non-cash transactions are ignored. And again, a closing bank statement emerges—the same closing bank statement you’d get using the indirect method. An advantage of the direct method is that it gives you more visibility of your cash inflow and outflow—something that can benefit your short-term planning, enabling you to identify and analyze any potential challenges or opportunities that might exist for future cash flow.  Mastering cash flow management is something every business will benefit from. Read this post next to learn how to do just that. A better view of the past helps you forecast for the future.  But it’s also more time-consuming for your team because it requires looking beyond the balance sheet and income statement account activity you already know so well. (Check out The Ultimate Guide to Financial Reporting to help you better understand your company's financial performance.) How To Choose Between Them In the end, both the indirect and direct cash flow methods get you to the same number. So how do you decide which method will work best for you?  Factors like the industry you’re working in and the audience you’re reporting for (whether management or banks, auditors or shareholders) will make a difference. And so will the data you have available and the insights you hope to generate.  But there are a few other factors to consider as well: Ease of use: Since it draws on data you’re already using in your profit and loss (P&L) statement and balance sheet, the indirect method is less complicated for teams to prepare, meaning it offers significant time savings. Transparency and granularity: As it focuses only on cash transactions that have been received or paid out, the direct method offers a more transparent view of your cash flow. It also allows for more specific details rather than using the reverse method of backing out non-cash items. Point of comparison: Unlike the direct method, the indirect method includes your net profit, letting you better compare cash flow with net profit to explain how your business receives cash compared to how it records income. What’s right for your team will be up to you. Most larger companies choose the indirect method, at least in part because of the lower time investment, while analysts often prefer it as well because it lets them see for themselves what adjustments have been made. The direct method, on the other hand, is often the best choice for smaller businesses, as the transparency into operating cash flow details helps them better determine their short-term cash availability planning needs. What Else You Need To Know Your cash flow statement tells a critical part of your financial story, no matter which approach you use. It can also give you the ultimate flexibility to run your business responsibly. A negative cash flow statement can be a strong indicator that your company’s not in a good position for a potential economic downturn or market shift. It can also mean you need to look into other financing options. It also empowers your investors, creditors, and stakeholders with the information they need to understand whether you have the cash available to pay off your loans if you can pay your employees, or how you measure up to your peers. Whether you choose to use the indirect or direct method will affect the way you operate your cash flow and the story you tell around it. So make sure you choose the method that puts you in the best place to help your business succeed. Do you want to talk more about choosing the right financial solutions for your business? Take a look at Vena’s financial reporting solutions here, or reach out to discuss what’s right for you.   Did you learn a lot about the different cash flow methods in this post? Here are three more posts to read next:  Why Are Dashboards Important to Performance? How To Overcome 6 Horrors of Financial Reporting Cash Management: 3 Questions to Ask When Planning for Today and Tomorrow Start bringing your financial data to life with Vena’s reporting solutions.