Financial performance is one of the key elements of any firm, firms go into business in order to make revenue that is the bottom line. New firms have to play a very hands on approach in their financial planning in order to ensure they are hitting the targets they forecasted to hit and revise the business plan if there are risks of missing the target. The first-year financial performance is generally projected on a monthly basis because it is crucial to monitor where and how the money is being used as there is no historical data points in order to make long term projections. Therefore, monthly projections help the business identify whether they are on track or off track through the frequent monthly check up and if there’s any corrective action that needs to take place without delay. Monthly forecast is also useful for organizations that might have a big population of part time employees due to schedule changes, a big reliance on supplies and equipment as estimates could vary greatly depending on demand need.

Firms will decide to shift into a quarterly analysis after the first year of business as they begin to feel more confident on their financial outlook and they have enough historical data points to make educated financial decisions. They are able to use these historical data points to make decisions on the expected future therefore it is easier to review on a quarterly basis and identify whether they are on track or not. After a year in business, firms aren’t typically having to be so reactive to the environment but rather more proactive in their planning. Quarterly forecasting shows the seasonal influence on a business and its cost for the business. As the business is set now, the understanding of these micro parameters that might affect the financials of a business are very important to know how the current year is shaping up.

Financial statements serve as a record of important financial data as it relates to a business’s activities. There are three main financial statements that every company creates and monitors: balance sheet, income statement, and cash flow statement. These documents provide reporting transparency to show the value of a company to current and future stakeholders. The balance sheet is a report of a company’s financial worth in terms of value. This is broken out into three parts, which include assets, liabilities, and shareholders equity. The income statement shows the company’s revenues and expenses during a particular period indicating how the revenues are transformed into net income or net profit. Cash flow statement provides an overview of the company’s cash flows from operating activities, investing activities, and financing activities. This statement shows the bottom line of how much cash a company has available. These statements combined can be used to produce projected financial statements. Projected financial statements are income statements and balance sheets developed for future years to forecast the potential impacts of various recommendations proposed for implementation (David, David, & David, 2020). By projecting what your financial statements look like in the future or comparing them to past statements, a business can plan for the future. Before making decisions to buy equipment, buildings, etc., the projected financial statements take into account past financial trends and market conditions that can help you determine if now or later is the best time to make that decision.

 Reference

 David, F. R., David, F. R., & David, M. E. (2020). Strategic Management Concepts and Cases: A Competitive Advantage Approach (17th ed.). New York, NY: Pearson Education. ISBN-13: 9780135203699. Retrieved from: https://www.gcumedia.com/digital-resources/pearson/2019/strategic-management_a-competitive-advantage-approach-concepts-and-cases_17e.php

Kenton, W. (2020). Financial Statement Analysis. Retrieved 28 June 2020, from https://www.investopedia.com/terms/f/financial-statement-analysis.asp