Free The 30 Day MBA by Colin Barrow

another. A small new business can achieve quite startling sales growth ratios in the early months and years. Expanding from £10,000 sales in the first six months to £50,000 in the second would not be unusual. To expect a mature business to achieve the same growth would be unrealistic. For Tesco to grow from sales of £10 billion to £50 billion would imply wiping out every other supermarket chain. So some care must be taken to make sure that like is being compared with like, and allowances made for differing circumstances in the businesses being compared (or if the same business, the trading/economic environment of the years being compared).
    It is also important to check that one business’s idea of an account category, say current assets, is the same as the one you want to compare it with. The concepts and principles used to prepare accounts leave some scope for differences.
    Seasonal factors
    Many of the ratios that we have looked at make use of information in the balance sheet. Balance sheets are prepared at one moment in time, andreflect the position at that moment; they may not represent the average situation. For example, seasonal factors can cause a business’s sales to be particularly high once or twice a year, as with fashion retailers, for example. A balance sheet prepared just before one of these seasonal upturns might show very high stocks, bought in specially to meet this demand. Conversely, a look at the balance sheet just after the upturn might show very high cash and low stocks. If either of those stock figures were to be treated as an average it would give a false picture.
    Getting company accounts
    It will be very useful to look at other comparable businesses to see their ratios as a yardstick against which to compare your own business’s performance. For publicly quoted and larger businesses whose accounts are audited this should not be too difficult. However, for smaller private companies the position is not quite so simple. In the first place, small companies need only file an abbreviated balance sheet. Even medium-sized businesses can omit turnover from the information filed on their financial performance. Only public companies listed on a stock market and larger companies have to provide full financial statements, though in many cases even the smallest companies choose to provide comfort to suppliers and potential employees.
    Despite the limitation, it is still possible to glean some valuable information on financial performance using these sources:
Companies House ( www.companieshouse.gov.uk ) is the official repository of all company information in the UK. Their WebCHeck service offers a free-of-charge searchable Company Names and Address Index, covering 2 million companies, searchable by either the company’s name or its unique company registration number. You can use WebCHeck to purchase a company’s latest accounts giving details of sales, profits, margins, directors, shareholders and bank borrowings at a cost of £1 per company.
Credit reports such as those provided by www.ukdata.com , www.checksure.biz and www.business-inc.co.uk cost around £8, are available online and provide basic business performance ratios.
FAME (Financial Analysis Made Easy) is a powerful database that contains information on 3.4 million companies in the UK and Ireland. Typically the following information is included: contact information including phone, e-mail and web addresses plus main and other trading addresses, activity details, 29 profit and loss account and 63 balance sheet items, cash flow and ratios, credit score and rating, security and price information (listed companies only), names of bankers, auditors, previous auditors and advisers, detailsof holdings and subsidiaries (including foreign holdings and subsidiaries), names of current and previous directors with home addresses and shareholder indicator, heads of department, and shareholders. You can compare each company with