What Investors Look for in a Monthly Financial Report

A monthly financial report comes in handy for investors looking to track and evaluate the financial health of their investments. Financial statements help them determine the company’s progress and the internal adjustments needed for long-term financial success. 

But what is it precisely that investors seek in monthly financial reports? Is it cash flow trends, budgeting, financial ratios, or asset, liability, and expense trends? 

This article will highlight the critical elements to make your monthly reporting insightful, accurate, and transparent and drive investor confidence. 

Let’s get started. 

Areas to Focus on in a Monthly Financial Report

When prepping your monthly financial report, there are several areas that investors typically use to judge the performance, profitability, and financial position of a business.

Timeliness and Consistency

Many relationships benefit from timeliness and consistency. Regular and reliable reporting can go a long way to establishing a lasting relationship with your investors. Timely monthly memos highlighting your current financial position and progress toward your targets are a great place to start. Further, a consistent format will make for a more accessible presentation and analysis and help your investors trust your reports. 

Financial Performance Metrics

Of course, facts and figures should provide the cornerstones for your reports. Covering these bases can go a long way:

• Revenue and sales growth trends generated from the
• Gross profit and cost of goods sold
• Net income and profit margins
• Earnings per share

Your accounting or reporting system should readily provide these figures. A startup finance professional like the team at Founder’s CPA can help you set these up so that your reporting is a breeze each month.

Key Financial Ratios

Financial ratios are calculated from your business’s financial statements and give insights into its performance, profitability, and financial position. Here are the fundamental financial ratios to include in your monthly report: 

Liquidity Ratios

Liquidity ratios are used to measure the performance of a business’s working capital and evaluate its ability to meet its short-term obligations. These ratios are typically either:

• Current ratio–the ability of a business’s existing assets to settle its current liabilities
• Quick ratio–the ability of a company’s more liquid assets like cash to cover its current liabilities like accounts payable

Solvency Ratios

Solvency ratios measure a business’s ability to pay its long-term debts from its cash flow. Common solvency ratios include:

• Debt-to-equity ratio, which measures your debt liability against shareholders’ equity
• Interest coverage ratio. Compares a company’s net income to its interest liabilities and shows that it will not default on interest payments

Efficiency Ratios

Efficiency ratios indicate a business’s ability to generate sales and profit using its working capital effectively. They can be calculated from: 

• Inventory turnover–the value of goods sold
• Accounts receivable turnover–net cost of goods sold on credit

Profitability Ratios

Profitability ratios are used to measure how a business utilizes its resources to make profits and include:

• Return on assets–profit generated from current and noncurrent assets
• Return on equity–profit made from investors’ equity/capital investment

Cash Flow Statement Analysis

Cash flow statement analysis belongs in your monthly reports because it highlights where your money comes from and where it goes. Your monthly report should outline operating, investing, and financing activities.

Operating cash flow trends show investors trends in your cash flow, what you’re investing in, and how the business is financed. 

Balance Sheet Strength

A monthly financial report should indicate the position of a business’s working capital. Working capital is measured by subtracting the current liabilities of a business from its current assets. This helps in determining a company’s long-term and short-term debt levels.

Expense Breakdown and Control

Investors might look for a detailed breakdown of expenses such as salaries, marketing, and utilities in a monthly financial report. They use this data to ensure company management identifies, monitors, and manages areas needing improvement to maximize profitability. 

Budget vs. Actual Variance Analysis

Every business should have a set of financial goals outlined in its budget. Your financial reports should include a detailed comparison of the actual financial results to budgeted amounts for that particular month. 

Investors use this analysis to assess the root causes of the significant variance between the budgeted expectations and actual financial results. It also helps you drive appropriate corrective actions. 

Business Outlook and Future Projections

Finally, a financial report is the perfect venue for the management’s assessment of the current business environment. It’s your chance to share the holistic financial status of a business through forward-looking statements and future growth projections. This includes the risks and opportunities on the horizon to help investors make informed investment decisions. 

Keep Your Monthly Financial Report Appealing to Investors

Your investors will ask for regular updates of monthly financial reports to know what’s happening in your business. These reports show investors that you are a good steward of their money. 

Meeting (and steering) investors’ expectations require accurate, transparent, and insightful monthly financial reporting. Comprehensive monthly financial reporting is the perfect tool to give your investors a picture of your business’s financial health and future projections. 

The experts at Founder’s CPA can help guide you through establishing regular monthly reports to enable you and your investors to make informed decisions. Contact us today to join 250+ businesses that rely on our accounting, tax, and CFO services.