Sample Solution

Financial records provide detailed insight into the financial health of a business and can help identify problems. A few examples include:

1) Cash flow problems: Financial records, such as balance sheets and cash flow statements, can reveal when a company is not generating enough income to cover expenses or if it’s short on cash. For example, if accounts receivable (money owed from customers) is increasing over time while accounts payable (money the company owes vendors and suppliers) is also increasing, this could be an indication of an impending cash crunch.

2) Overhead costs that are too high: By comparing overhead costs (such as rent payments, insurance premiums or professional fees) to industry averages for similar businesses in your area, you can get an idea of whether you’re spending too much money in these areas. If so, this could indicate a problem with pricing strategy or other operational issues that need to be addressed. Additionally, looking at trends over time may show which areas have experienced the most significant increases in cost per unit produced—potentially indicating waste or mismanagement in those areas.

3) Losses due to fraud: Financial records can sometimes reveal cases of fraud within the organization by uncovering discrepancies between what was reported versus what was actually paid out—or tracing unexplained transactions back to certain individuals or entities. An analysis of financial data will allow management to uncover suspicious activity they may otherwise have overlooked during routine operations checks.

Overall, it’s important for businesses to regularly review their financial records both for compliance purposes and performance improvement objectives; through analysis of these documents companies are able to quickly identify potential problems before they become major issues. With proper attention and oversight from management teams and accountants alike, financial information provides invaluable insight into how well businesses are performing financially–helping them remain agile despite any challenges that arise along the way.(Nguyen &Shen-Adams 2020).