The Challenges of Balance Sheet Analysis
One of the biggest challenges in the analysis of balance sheets is the diversity of accounting standards. Due to globalization and the different regulations in different countries, comparability and consistency are often limited. Differing standards such as HGB (Handelsgesetzbuch) in Germany and IFRS (International Financial Reporting Standards) mean that key figures are not always directly comparable.
In addition, there are industry-specific accounting frameworks, which can be different for each economic segment. This makes it difficult to compare financial reports from companies in different industries. The complexity of financial reports is another aspect that makes analysis difficult – especially for analysts who are not familiar with the specific industry.
How You Can Develop Meaningful Balance Sheet Scoring
In order to meet these challenges it is important to prepare financial reports systematically. A well-proven approach is to convert the reports into so-called "analysis balance sheets". This methodical preparation makes it possible to neutralize differences in the accounting schemes and accounting policy influences, which enables better comparability.
An important step in analysing balance sheets is the selection of suitable key figures. The most important key figures include:
- Total return on capital: This key figure measures the efficiency with which the company uses its total capital and provides information on how well the company works with the capital available to it.
- Equity ratio: Shows the proportion of equity capital in the total capital and is an indicator of the financial stability and independence of the company.
- Second-degree liquidity: This key figure shows the extent to which the company is able to fulfil its short-term payment obligations.
These and further key figures provide important insights into the financial situation of the company and serve as a basis for well-founded decision-making.
Dynamic Market Conditions and Their Effects on Balance Sheet Scoring
The world economy is dynamic and events such as the corona pandemic and geopolitical crises can have significant effects on the financial position of companies. These external factors need to be taken into account when analysing balance sheets because they can have a direct effect on the evaluation and the scoring. For example, increasing energy prices or changes to interest-rate policy can directly affect the financial stability of companies.
Furthermore, it is important to observe changes in the regulatory environment. New legislative requirements can influence the way in which companies create their financial reports and how these reports need to be interpreted.
Summary: The Importance of Well-Founded Balance Sheet Analysis
High-quality balance sheet scoring is essential in order to be able to estimate the economic situation of companies correctly. It enables not only a reliable evaluation of creditworthiness but also provides valuable information for strategic decisions. Through the systematic selection and analysis of the right key figures companies can secure their own financial stability and strengthen their position on the market.
The use of specialized software solutions can help to perform these complex analyses efficiently and in a targeted manner, so that companies can monitor and control their financial health optimally.
If you want to secure the financial stability of your company in the long term, it is essential to consider these factors in your balance sheet analysis and to utilise reliable key figures.
