What does financial analysis allow a business owner to do?

Bookkeepers are often asked to help assess the overall health of a business compared to other businesses in its sector or industry. 

But how do we do that? 

We use the ratios to understand a business's liquidity, efficiency, solvency, and profitability. Then we can use those metrics to compare:

The performance of the business across its history.

The business to other businesses in its sector or industry.

The actual performance of the business with its goals.

The business to industry standards.

We can also assess trends over time by using the income statement. 

Being able to analyze financial documents and use them to effectively assess the performance of a business helps you focus on efficiency and profitability.