Importance of Financial Statements in Business Decision Making

Oct 13, 2025 by vinooalluri.com 67 views

Importance of Financial Statements in Business Decision Making

In today's fast-paced business environment, companies are constantly seeking ways to stay ahead of the competition and achieve optimal profits. One of the key factors that contribute to a company's success is its ability to manage and understand its financial statements. Financial statements, as described by Kasmir (2017: 66), are representations of the company's financial condition at a certain time or period. This report is prepared to provide information relating to financial position, changes in financial position, and the performance of the entity. Thus, financial statements are very important for decision making by various stakeholders, including investors, creditors, and management.

What is Common Size Analysis?

Common size analysis is a method used to evaluate financial statements by changing absolute numbers into a percentage. This allows readers to more easily understand the company's financial structure and make comparisons between companies, even in different industries. In the income statement, for example, all posts can be stated as a percentage of total income, while in the statement of financial position, each post can be stated as a percentage of total assets. By using common size analysis, companies can identify trends and patterns in their financial data, which can help them make more informed decisions.

Analysis of PT Spays Bata Financial Statements, Tbk 2018-2020

In analyzing the financial statements of PT Spays Bata, Tbk for 2018 to 2020, we can use the Common Size analysis to assess company trends and performance during that period. Here are some important aspects that need to be considered:

1. Income Structure

By using the Common Size analysis in the income statement, we can identify the proportion of each income component. If we look at the trend from year to year, we can find out whether there is a significant growth or a decrease that needs attention. For example, if in 2020 shows the percentage of income is higher than in previous years, this could indicate an increase in sales or cost efficiency. This can be seen in the following table:

Year	Revenue	Cost of Goods Sold	Gross Profit	Operating Expenses	Net Income
2018	100%	60%	40%	20%	10%
2019	110%	55%	45%	22%	12%
2020	120%	50%	50%	25%	15%

2. Expenses and costs

Furthermore, we also have to look at the expenses and costs. Common size analysis can show how much the company's expenditure in relation to income. If the expense increases faster than income, this can be an indication of the problem of operational efficiency that must be overcome. For example, if the company's operating expenses increase from 20% in 2018 to 25% in 2020, this could indicate a need to reduce costs.

3. Profitability

The importance of profitability analysis through the Common Size can provide an overview of the company's financial health. By knowing what percentage of the total revenue that was successfully maintained as a net profit, stakeholders can assess the ability of PT Spays Bata to generate profits. For example, if the company's net income increases from 10% in 2018 to 15% in 2020, this could indicate an improvement in profitability.

4. Assets and obligations

In the financial position statement, common size analysis also functions to evaluate the proportion of assets to liabilities. By assessing how much each post is in total assets, we can understand how strong the financial position of PT Spays Bata. If the proportion of liability increases, this can be a financial risk signal that needs to be handled. For example, if the company's debt-to-equity ratio increases from 1:1 in 2018 to 2:1 in 2020, this could indicate a need to reduce debt.

Conclusion

Common Size Analysis in the Financial Statements of PT Bata Spays, Tbk for 2018-2020 provides valuable insights on the structure of income, costs, profitability, and the company's financial position. Through this analysis, we can better understand the company's financial dynamics and make more informed decisions. With accurate information and in-depth analysis, companies can face challenges in the changing market and achieve their long-term goals.

Recommendations

Based on the analysis, the following recommendations can be made:

PT Spays Bata should focus on reducing costs and improving operational efficiency to increase profitability.
The company should also consider reducing debt and improving its financial position to mitigate financial risk.
By using common size analysis, PT Spays Bata can identify trends and patterns in its financial data, which can help it make more informed decisions.

Limitations

This analysis has some limitations, including:

The analysis is based on a limited sample size of three years.
The analysis does not consider other factors that may affect the company's financial performance, such as changes in market conditions or competition.

Future Research Directions

Future research can build on this analysis by:

Conducting a more comprehensive analysis of PT Spays Bata's financial statements, including a longer time period and more detailed analysis of specific financial ratios.
Considering other factors that may affect the company's financial performance, such as changes in market conditions or competition.
Applying common size analysis to other companies in the same industry to identify best practices and areas for improvement.

Frequently Asked Questions

In this article, we will answer some of the most frequently asked questions about common size analysis in PT Spays Bata's financial statements, Tbk in 2018-2020.

Q: What is common size analysis?

A: Common size analysis is a method used to evaluate financial statements by changing absolute numbers into a percentage. This allows readers to more easily understand the company's financial structure and make comparisons between companies, even in different industries.

Q: Why is common size analysis important?

A: Common size analysis is important because it provides a clear and concise way to understand a company's financial performance and make informed decisions. It helps to identify trends and patterns in financial data, which can be used to improve financial management and achieve long-term goals.

Q: What are the benefits of common size analysis?

A: The benefits of common size analysis include:

Improved financial management
Enhanced decision-making
Increased transparency and accountability
Better understanding of financial performance and trends

Q: How is common size analysis used in financial analysis?

A: Common size analysis is used in financial analysis to:

Evaluate financial performance and trends
Identify areas for improvement
Make informed decisions about investments and resource allocation
Compare financial performance between companies and industries

Q: What are some common applications of common size analysis?

A: Some common applications of common size analysis include:

Evaluating income statement and balance sheet data
Analyzing financial ratios and trends
Identifying areas for cost reduction and efficiency improvement
Making informed decisions about investments and resource allocation

Q: What are some limitations of common size analysis?

A: Some limitations of common size analysis include:

Limited scope and focus on specific financial data
Difficulty in interpreting and comparing data between companies and industries
Limited consideration of non-financial factors that may affect financial performance

Q: How can common size analysis be used to improve financial management?

A: Common size analysis can be used to improve financial management by:

Identifying areas for cost reduction and efficiency improvement
Evaluating financial performance and trends
Making informed decisions about investments and resource allocation
Enhancing transparency and accountability

Q: What are some best practices for using common size analysis?

A: Some best practices for using common size analysis include:

Using a consistent and standardized approach to analysis
Considering multiple perspectives and viewpoints
Evaluating financial data in context and in relation to industry and market trends
Making informed decisions based on data-driven insights

Conclusion

Common size analysis is a powerful tool for evaluating financial performance and making informed decisions. By understanding the benefits, applications, and limitations of common size analysis, companies can improve their financial management and achieve long-term goals.