Most people find financial statement analysis time-consuming and complex.
Financial statement spreading can be a valuable tool for credit and financial analysts. It plays a crucial role in portfolio management, evaluating whether a borrower is creditworthy or performing an in-depth review of assets and long-term trends.
Discover the fundamentals of financial statement spreading, how it functions, and why you should incorporate it into your investment strategy.
What Is Financial Statement Spreading?
Financial statement spreading is a process used to extract and organize financial data and line items from balance sheets, income statements, and cash flow statements.
A critical step in analyzing credit, financial statement spreading is a must-have for banks, lenders, and any business that assesses the trustworthiness of borrowers. It supplies the information required to conduct a thorough analysis and decide on lending, investing, and other financial transactions.
Financial spreading offers credit analysts a comprehensive view of borrowers’ current and prospective financial state, allowing for informed decision-making when assessing whether to grant credit. It makes for a more straightforward evaluation of an organization’s financial health.
It also involves transferring information from the borrower’s financial documents into the bank’s analysis spreadsheet to provide a more granular view of their financial situation. This helps banks make better decisions regarding lending money or providing other services.
Financial statement spreading helps banks gain insight into an entity’s financial position, allowing them to make more informed decisions about lending money or providing other services. Because of this, many organizations are turning to automated software solutions to expedite the spreading of financials.
Additionally, automation can allow for more in-depth financial analysis with the help of built-in analytics. Accuracy and efficiency make automated financial statements valuable for organizations seeking better control over their finances.
What Is the Benefit of Spreading Financials?
Financial statement spreading offers numerous benefits, such as the following:
Reduces Human Error
A key benefit of financial statement spreading is that it can help reduce human error by automating some of the manual processes involved in analyzing financial documents. Additionally, it can provide a more accurate picture of a company’s finances by allowing for a more detailed analysis.
Informs Crucial Decisions On Commercial Lending
Lenders can make more informed decisions when granting commercial loans or other services by allowing for a detailed analysis of a company’s financial situation.
Provides Insights On Short- and Long-Term Performance
Spreading financials provides essential insight into a business’s short-term performance while determining if an entity can meet its long-term obligations. It provides a complete account report produced by spreading financial statements and ensuring that all intercompany transactions have been accounted for properly.
Evaluates An Organization’s Financial Health In More Depth
Banks can gain detailed information about their borrower’s financial position and creditworthiness by calculating the differences between beginning and ending balances. This allows them to evaluate how well the business performs over time and how much capital it may need to lend to support growth.
Provides An Overview of Cash Flows
Cash flow statements are a crucial part of financial statement spreading. They provide information about cash inflows and outflows related to operating, investing, and financing activities. Spreading these statements allows lenders to gain insight into how efficiently an entity manages its finances and highlights any potential liquidity issues that may arise.
Produces Financial Reports
Financial statement spreading generates meaningful financial reports, which provide valuable insights into the overall performance of an entity. These reports allow lenders to quickly identify potential risk factors such as credit history, solvency levels, or liquidity ratios so that appropriate action can be taken where necessary.
How Financial Spreading Advances Credit Analysis
Financial spreading involves systematically extracting key financial information from a borrower’s financial statements—including income statements, balance sheets, and cash flow statements. This data is then presented in a standardized format known as a financial spread or report for comprehensive analysis.
Financial spreads permit credit analysts to develop future debt and income estimations based on past trends and figures. By leveraging these projections, creditors can gauge the profits to anticipate and any possible risks that may arise when providing credit services to individuals or entities.
The process of financial spreading allows credit analysts to compare borrowers’ financial performance with their peers within their industry or geographic region. By comparing ratios from one entity to another within the same sector, they can determine how well the company is doing compared to its peers.
They also gain insight into whether or not providing them with credit would be wise.
For example, if one company has significantly lower liquidity ratios than its peers, this could indicate why it may have difficulty repaying back any loans they receive.
Financial spreads also reveal crucial trends, patterns, and ratios that can provide insight into the borrower’s liquidity, profitability, leverage, efficiency, working capital, net worth, and overall operating performance.
Finally, stakeholders can quickly find any warning signs that may not have been obvious without further investigation. This helps them to anticipate and prevent future problems before they arise.
How to Perform Financial Statements Spreading
Financial statement spreading involves financial data analysis, typically in Excel spreadsheets. It involves considering different variables and line items linked to financial information, such as income, expenses, liabilities, assets, and cash flow. This type of analysis helps to determine if a loan application can be approved or if it should be denied.
A standard method for spreading financial statements is cash flow or balance analysis. This approach focuses primarily on a borrower’s current and expected future cash flows sourced from the statement of cash flows rather than on the entire balance sheet.
All assets are tallied up along with any liabilities or debt payments to come up with an accurate picture of how much money a borrower will likely have available for loan repayment after other necessary expenses are considered.
Some banks may use ratio analysis when spreading financial statements. This method dives into various financial ratios, such as debt-to-income, debt service coverage, and liquidity ratios. It helps lenders better understand how well an applicant can manage their finances and make loan payments in the future.
By looking at these ratios, along with other factors such as credit scores and past payment history, banks can determine whether they should approve or deny an application for a loan.
Make Financial Statement Spreading Effortless With Blooma
Financial statement spreading involves taking data from a company’s financial statements and converting it into a standardized format. This makes accessing and analyzing the data easier to gain insights into a company’s financial position.
Blooma’s AI-driven software can make financial statement spreading easier by automating the process of extracting data from scanned documents, such as financial statements, balance sheets, schedules of real estate owned, and tax returns.
Blooma’s financial spreading software and machine learning algorithms are designed to recognize patterns in financial statements and quickly determine which information should be extracted. This reduces the need for manual data entry and minimizes the risk of errors.
Blooma’s customizable data extraction templates allow businesses to customize their models to fit their needs and improve accuracy.
Blooma also offers an API that can be easily integrated into existing financial systems, allowing businesses to access and analyze their data quickly. Its user-friendly interface enables users to easily train and deploy models without technical expertise or programming knowledge.
These features make it easier for entities to quickly access and interpret financial statements, giving them valuable insights into their performance and helping them make sound business decisions.
Try Blooma today and discover how our platform can easily take your documents and turn them into meaningful data and insights.