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Every year, your accountant hands you a set of financial statements. You sign them. You file them. But do you actually understand what they’re telling you about your business?

Here’s a plain-English guide — no accountant required.

The Three Core Statements

1. The Balance Sheet (Statement of Financial Position)

This is a snapshot of what your business owns and owes at a specific date.

Assets = what the business owns:

• Current assets: cash, receivables, inventory (converts to cash within 12 months)
• Non-current assets: property, equipment, long-term investments

Liabilities = what the business owes:

• Current liabilities: payables, short-term loans, VAT payable (due within 12 months)
• Non-current liabilities: long-term loans, lease liabilities

Equity = what’s left for the owners = Assets minus Liabilities

Key check: Is your equity growing year-on-year? If not, your business is consuming value.

2. The Income Statement (Profit & Loss)

This shows what the business earned and spent over a period (usually 12 months).

Revenue → Gross Profit → EBITDA → EBIT → Net Profit

Watch these numbers:

• Gross margin = (Revenue – Cost of Sales) / Revenue × 100 — is it stable or shrinking?
• Net margin = Net Profit / Revenue × 100 — how much of every AED of revenue becomes profit?
• EBITDA — what the business earns before financing and accounting adjustments

3. The Cash Flow Statement

This is the most important statement that most business owners ignore.

Profit ≠ Cash. A business can be profitable on paper and run out of cash.

Three sections:

• Operating: Cash generated from the core business
• Investing: Cash spent on assets or received from asset sales
• Financing: Cash from loans, repayments, owner drawings

Red flag: If operating cash flow is consistently lower than net profit, your receivables are piling up.

5 Ratios Every Business Owner Should Know

1. Current Ratio = Current Assets / Current Liabilities (>1 is healthy)
2. Debt-to-Equity = Total Debt / Equity (lower is safer)
3. Receivables Days = (Receivables / Revenue) × 365 (how long customers take to pay)
4. Gross Margin % = Gross Profit / Revenue × 100
5. Net Margin % = Net Profit / Revenue × 100

Want your financial statements explained in plain English — or want to understand what the numbers mean for your business strategy? Contact FSH Financial Consultants at info@fshconsultants.com