Home Blog 5 Types of Financial Statements and How to Read Them in Indonesia Finance | Financial Operational Resilience | Indonesia 5 Types of Financial Statements and How to Read Them in Indonesia InCorp Editorial Team 9 October 2024 5 reading time Table of Contents What is a Financial Statement? What are the 5 Types of Financial Statements? How Financial Statements Work Benefits of the Financial Statement Streamline Your Financial Management with InCorp Financial statement is important for any business, particularly in Indonesia, where complex regulations and evolving standards can challenge companies of all sizes. Accurate financial reporting may help businesses maintain compliance, secure funding, or make informed strategic decisions. In this guide, we’ll demystify the critical components of financial statements in Indonesia, providing clear insights into balance sheets, income statements, and cash flow reports. Whether facing regulatory hurdles or trying to streamline your financial processes, this guide will equip you with the knowledge to navigate the financial landscape confidently. What is a Financial Statement? Financial statements are documents companies prepare that outline their financial performance and condition. Government bodies and accountants frequently review these statements to verify their accuracy, and they are crucial for purposes such as taxation, securing financing, or making investment decisions. For-profit businesses typically produce four primary financial statements: The balance sheet Income statement Statement of cash flows Statement of changes in equity Non-profit organizations use similar statements with different names and slightly altered content to reflect their specific financial reporting needs. What are the 5 Types of Financial Statements? Five types of business financial statements should be aware of. Being familiar with this list of financial statements helps you keep your business finances organized and empowers you to make smarter, data-driven decisions for the future. Balance Sheet The balance sheet, commonly known as the statement of financial position, summarizes a company’s assets and liabilities after a reporting period. As a standard financial statement example, it is organized according to the following formula: Assets = Liabilities + Shareholders’ Equity This equation ensures that a company’s resources (assets) are balanced with the claims against those resources, helping stakeholders assess the business’s financial stability and solvency. Income Statement The income statement outlines a company’s financial performance over a specific period, detailing revenue, expenses, and profit. It is also known as a profit-loss statement or earnings statement. The statement includes: Revenue generated from sales of goods and services. Expenses incurred to earn that revenue and manage the business. Net income or profit remaining after deducting expenses. Profit and loss from non-operational activities Beneath International Financial Reporting Standards (IFRS), companies must also present a statement of comprehensive income alongside the income statement. Cash Flow Statement The cash flow statement, also known as the statement of changes in financial position, monitors the company’s cash flow and cash equivalents over a specific period. Cash equivalents refer to short-term, highly liquid investments that can be transformed into cash, typically within three months. Statement of Retained Earnings The statement of retained earnings shows the total earnings retained in the business after distributing dividends or making other shareholder payments. It details changes in retained earnings from the beginning to the end of each reporting period and may include adjustments from transactions with related parties. Under IFRS, a statement of shareholder equity changes is also required. Notes to the Financial Statements The notes to the financial statements offer extra context and clarifications to help understand the financial reports. These notes typically include: 1. Accounting policies and estimates are used to prepare statements. 2. Detailed information on specific line items, such as: A breakdown of accounts payable and receivable Revenue by segment Amortization periods for long-term assets 3. Other critical information, including: Risks related to financial instruments, like exchange rate or credit risk. Any breaches of debt covenants Contingent liabilities Information about acquisitions or strategic investments Whether the statements are prepared on a cash or accrual basis The accounting standards followed (e.g., IFRS or ASPE) How Financial Statements Work Financial data from a business is examined by both internal and external parties to assess its performance and forecast potential stock price movements. The annual report consists of the company’s financial statements and is a crucial source of accurate and audited financial data. Investors, market analysts, and creditors rely on a company’s financial statements to assess its financial health and earning potential. The three critical financial statements are the balance sheet, income statement, and cash flow statement. READ MORE:How to File Your Companies Financial Statements in Indonesia?Financial Service Providers in Indonesia are Required to Handle Customer ComplaintsThe Business Trend of Financial Technology in Indonesia Benefits of the Financial Statement Preparing and utilizing financial statements provide various benefits for the business, which can be seen in the below list: Assessing Financial Health Financial statements help businesses assess profitability, liquidity, solvency, and efficiency by analyzing critical documents like the income statement and balance sheet. This financial statement analysis highlights strengths, weaknesses, and areas for improvement. Informed Decision-Making Financial statements provide crucial data for stakeholders to make informed decisions about investments, capital allocation, pricing, and expansion. Building Stakeholder Trust Financial reports communicate a company’s financial status to stakeholders, promoting transparency and trust. Ensuring Regulatory Compliance Accurate financial statements ensure compliance with laws and regulations, helping businesses avoid penalties and maintain accountability and credibility. Securing Investments and Loans Strong financials attract investors and lenders by showcasing a business’s financial health and growth potential, improving chances of securing favorable terms. Benchmarking Against Competitors Financial reports allow businesses to compare their performance with that of their industry peers, identifying areas for improvement and opportunities to boost efficiency. Supporting Financial Planning Maintaining accurate records enables businesses to forecast and budget effectively, guiding strategic growth and resource allocation. Streamline Your Financial Management with InCorp Using financial statements offers numerous benefits for businesses, including ensuring long-term continuity by providing a clear view of economic health. Accurate and up-to-date financial statements also help mitigate risks and prepare businesses for various scenarios. To support this, InCorp offers financial and operational resilience services to safeguard your business’s financial well-being, even during force majeure events. Additionally, we aim to streamline your business processes by offering comprehensive services such as accounting, payroll, and tax consulting, helping you focus on growth and stability. Fill out the form below to streamline your financial management in Indonesia hassle-free. Read Full Bio Daris Salam COO Indonesia at InCorp Indonesia With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.
Home Blog Understanding EBITDA and Why It Matters for Business Employer of Record | Finance | Indonesia Understanding EBITDA and Why It Matters for Business InCorp Editorial Team 3 October 2024 7 reading time Table of Contents What is EBITDA? Is EBITDA the Same as Gross Profit? What Does an EBITDA Tell You? Why Use EBITDA for Business EBITDA vs. EBITA How to Calculate EBITDA What is A Good EBITDA? Disadvantages of EBITDA Tips on How to Increase Company EBITDA EBITDA is a key financial metric to assess a company’s operating performance. Unlike net income, EBITDA focuses purely on the profitability of a business’s core operations, stripping away the effects of financing and accounting decisions. This makes it a valuable tool for investors, analysts, and business owners alike, as it gives a more precise comparison of profitability across companies and industries. In this article, we will dive into the meaning of EBITDA, why it matters, and how to calculate it to evaluate a company’s financial health. What is EBITDA? EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It measures a company’s overall financial performance and is an alternative to other financial metrics such as earnings, revenue, and income. Its key components include: Interest: This refers to the costs incurred from borrowing, including interest payments on loans from banks or other lenders. Taxes: This encompasses all forms of taxation imposed by government and regulatory bodies. Depreciation: This expense reflects the decrease in the value of a company’s tangible fixed assets over time. Depreciation is a non-cash expense that accounts for wear and tear on these assets. Amortization: Similar to depreciation, amortization is a non-cash expense but pertains to intangible assets. It involves the gradual write-off of the initial cost of these intangible assets over their useful life. Is EBITDA the Same as Gross Profit? Although EBITDA and gross profit are related, they measure different aspects of financial performance. Gross profit is calculated by subtracting the cost of goods sold (COGS) from revenue, reflecting the profitability of a company’s core business activities before accounting for other expenses. On the other hand, EBITDA provides a broader view of operational performance by excluding interest, taxes, depreciation, and amortization. This makes EBITDA a more precise indicator of a company’s operational profitability, as it eliminates non-operating expenses and non-cash items from the equation. What Does an EBITDA Tell You? EBITDA is a key metric that businesses, valuators, and bankers use to assess a company’s financial performance and profitability before non-core expenses. If you’re wondering, “What is EBITDA used for?” its primary functions include the following: Businesses and Valuators Entrepreneurs and business valuators frequently rely on EBITDA to determine a company’s valuation during sales or acquisitions. A common approach involves applying multiples to EBITDA to estimate the business’s worth, which can vary based on market conditions, industry, and location. Financial Institutions Bankers use EBITDA to evaluate a company’s cash flow for repaying long-term debt and calculate its debt coverage ratio, indicating its ability to meet debt obligations. Financial institutions often include EBITDA in loan conditions, such as requiring a specific debt coverage ratio. Why Use EBITDA for Business For two key reasons, understanding how to calculate and evaluate EBITDA is crucial for business owners. First, EBITDA demonstrates a company’s value. Second, it shows potential buyers and investors the company’s worth, highlighting possible growth opportunities. By eliminating the effects of financing, taxes, and accounting choices, EBITDA allows for a straightforward comparison of profitability across companies and industries. This makes it a widely used tool among owners, buyers, private equity investors, and analysts globally. Additionally, the EBITDA multiple can help estimate a company’s valuation range, which we will explore next, along with its significance for businesses. Read more: Why Hiring a Headhunter in Indonesia is Key to Your Business Success The Importance of Stakeholders in Business: A Comprehensive Guide The Advantages of Using an Employer of Record for IT Hiring EBITDA vs. EBITA Like EBITDA, EBITA (earnings before interest, taxes, and amortization) is a non-GAAP financial metric investors use to measure a company’s profitability. Although EBITA is less commonly used than EBITDA, which includes depreciation in its calculation, EBITDA is generally seen as a better indicator of operating profitability in industries with significant assets, such as utilities, telecommunications, and manufacturing. How to Calculate EBITDA EBITDA can be calculated in two ways: by starting with net income and working backward or by beginning with gross profit and calculating it forward. Both approaches follow a standard EBITDA format, which ensures consistency when comparing a company’s performance across different periods or with other businesses. Backward Calculation To calculate EBITDA from net income, use the following formula: EBITDA = Net Income + Interest Expense + Tax Expense + Amortization Expense + Depreciation Expense Forward Calculation To calculate EBITDA moving forward, use this formula: EBITDA = Revenue – Operating Expenses – SG&A Expense It is important to note that neither formula represents cash flow from operations. Example of EBITDA Consider a company with USD 100 million in revenue, USD 40 million in cost of goods sold (COGS), and USD 20 million in overhead expenses. With USD 10 million in depreciation and amortization costs, the operating profit comes to USD 30 million. After accounting for a USD 5 million interest expense, the company’s earnings before taxes are USD 25 million. With a 20% tax rate, USD 5 million is deducted, leaving a net income of USD 20 million. By adding back depreciation, amortization, interest, and taxes to net income, the EBITDA totals USD 40 million. What is A Good EBITDA? What constitutes a good EBITDA margin depends on the industry and the company’s strategy. For instance, a smaller company with a higher margin might be seen as more efficient. A larger company with a lower margin may prioritize volume, which could align with its business goals. For example, Company X has an EBITDA of USD 800,000 and a total revenue of USD 8 million, resulting in a 10% EBITDA margin. Meanwhile, Company Y has an EBITDA of USD 960,000 and a total revenue of USD 12 million, yielding an 8% margin. Though Company Y has a higher EBITDA, Company X has a better margin, which could make it more attractive to an investor. Disadvantages of EBITDA The essence of EBITDA is that it captures only a portion of a business’s financial narrative. While this aspect is important, it overlooks other critical elements. Specifically, companies with significant debt obligations may be at risk if their interest rates fluctuate. For instance, if a company’s debts are tied to variable interest rates, an increase in the base rate set by Bank Indonesia could raise their borrowing costs. Such rate hikes also affect their customers, potentially leading to cash flow challenges for the company. Tips on How to Increase Company EBITDA Businesses can implement various strategic practices to improve EBITDA and increase profitability. These include: Reduce Business Expenses Cutting business expenses is vital for increasing EBITDA and can provide quick results—review costs to find savings by renegotiating contracts, eliminating unnecessary services, or consolidating suppliers. Improve Inventory Management Enhancing inventory management with technology can lower carrying costs and prevent stockouts, boosting efficiency and EBITDA. Maintaining good communication with suppliers is essential for anticipating price increases. Conduct Internal and Financial Audits Internal audits help identify overspending and enhance controls, reducing risks like fraud. Regular financial audits ensure accurate statements, aiding better decision-making and financial planning. Automate Manual Processes Automating manual tasks can decrease overhead costs and increase efficiency, allowing employees to focus on growth initiatives. Suitable processes for automation include customer service, HR tasks, accounts payable/receivable, and inventory management. Utilize InCorp’s BPO Services Consider using InCorp’s business process outsourcing (BPO) solutions, such as accounting services, payroll outsourcing, tax consulting, and Employer of Record services, to streamline operations and reduce overhead costs. By outsourcing these non-core functions, your company can increase operational efficiency, enhance focus on revenue-generating activities, and improve EBITDA by optimizing profitability and controlling expenses. Fill out the form below to boost your company’s profitability and drive long-term success. Read Full Bio Daris Salam COO Indonesia at InCorp Indonesia With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships.
Home Blog Global Mobility Services in Indonesia Global Mobility Services in Indonesia InCorp Editorial Team 20 March 2024 2 reading time Table of Contents Understanding the Global Mobility Services The Benefits of Using Global Mobility Services Tax Advisory in Global Mobility Services Why Choose Global Mobility Services from InCorp Indonesia Understanding the Global Mobility Services Global Mobility Services (GMS) is an invaluable set of solutions and advisory services that allows companies to better manage their workforce across different countries in today’s global business environment. Businesses can deploy and manage employees more efficiently by opting for a GMS, ensuring successful international assignments. The suite of services offered by InCorp Indonesia is designed to provide companies with all the necessary tools and support to make your international employee movements as smooth and seamless as possible. Talk to Our Experts The Benefits of Using Global Mobility Services Partnering with a global mobility services provider can benefit both employers and employees. By providing expert guidance and compliance, cost-efficiency, and operational efficiency, these providers can help streamline relocation processes, ensure legal and financial stability, and facilitate faster deployment or employment in a specific location, ultimately resulting in a more productive and efficient work environment. Talk to Us Tax Advisory in Global Mobility Services Our Global Mobility Services offers tailored tax solutions for companies with international operations. Our tax advisory team at GMS considers local and international tax laws and provides guidance to address tax implications for employers and employees during cross-border assignments. With our expertise in tax-related matters, we help businesses stay compliant and minimize risks. Why Choose Global Mobility Services from InCorp Indonesia 1SEAMLESS PROCESSHaving an in-depth knowledge of the local regulations, we manage your global mobility services inquiry most securely and seamlessly.2EXPERIENCED CONSULTANTSThanks to our extensive experience, international businesses have trusted us for over a decade.3CLIENT-ORIENTED SERVICESWe have the right skills to get things done and will not stop until they reach your satisfaction.
Home Blog Annual Tax Reporting Consultant Services in Indonesia Annual Tax Reporting Consultant Services in Indonesia InCorp Editorial Team 7 May 2024 3 reading time Table of Contents Conducting Annual Tax Reporting in Indonesia Tax Reporting in Indonesia with InCorp Types of Tax in Indonesia Tax Reporting in Indonesia: Workflow & Timeline Why Choose InCorp Indonesia as Your Tax Reporting Provider? Conducting Annual Tax Reporting in Indonesia It is important to comply with local regulations at all times, regardless of the location of your business. In Indonesia, individuals and corporations are obligated to fulfill their tax responsibilities. However, tax reporting and related procedures can be difficult and tiring due to tax laws’ intricate and constantly evolving nature. Delegating your corporate matters to an experienced tax consultant can make things easier. Start reporting Tax Reporting in Indonesia with InCorp InCorp Indonesia offers tailored services that cater to your specific needs. We aim to streamline the investment process and facilitate the smooth operation of your business. Our team ensures compliance with tax requirements and takes care of the burdensome tasks associated with tax reporting. With our assistance, you can focus on growing your business while we take care of the rest. Consult with us Types of Tax in Indonesia PERSONAL INCOME TAXCOORPORATE INCOME TAXVALUE-ADDED TAXIMPORT TAX The Indonesian government collects personal income tax from residents on salaries, interests, dividends, and pensions. Employers calculate and pay these taxes monthly. Tax residents without an Indonesian Taxpayer ID (NPWP) may face higher tax rates. Indonesia’s corporate income tax is charged to any business entity earning income there. Despite most companies being charged with a flat rate, some specific business lines have their corporate income tax rates. Most goods and services in Indonesia are subject to Value-Added Tax (VAT) or Pajak Pertambahan Nilai (PPN). VAT is applied at each production stage, and PKP companies must report monthly VAT and business activities. Import tax in Indonesia applies to imported goods, with exemptions based on product, region, or origin. Importers must follow regulations, consult customs, and avoid non-compliance penalties, delays, or confiscation. Tax Reporting in Indonesia: Workflow & Timeline Why Choose InCorp Indonesia as Your Tax Reporting Provider? 1HIGH-QUALITY SERVICE We constantly provide high-quality service by seeking to understand your issues and needs. Our solutions are personalized for each and every business. 2EXPERIENCED TAX SPECIALISTS We are the best at what we do through years of professional experience. InCorp has a team of accounting staff and tax specialists that have the right skills to get the job done while meeting clients’ satisfaction. 3COMPLETE PACKAGE We do not do things halfheartedly. To ensure client satisfaction, we offer a complete package that includes accounting services, tax reporting services, and auditing services. 4TIME & COST-SAVING Save time and minimize costs as you outsource your accounting and tax operations. Your internal talent can focus on business strategies that will help grow your business.
Home Blog What are the tax rates for corporate income tax? What are the tax rates for corporate income tax? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents The rates vary based on company’s gross turnover. But the normal rate is 25%.
Home Blog Do PT PMA, PT and Representative Office all have the same tax obligations? Do PT PMA, PT and Representative Office all have the same tax obligations? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents No. PT PMA and PT have to manage corporate income tax, withholding tax and VAT, plus LKPM report for PT PMA. Representative Office only manages withholding tax and LKPM report.
Home Blog What are the deadlines for annual tax return? What are the deadlines for annual tax return? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents For individuals, the deadline is 31 March. For companies, the deadline is 30 April.
Home Blog Will having a tax ID but never submitting tax reports cause a problem to my company? Will having a tax ID but never submitting tax reports cause a problem to my company? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents Yes, you will receive an administrative penalty for delaying or not correctly and promptly filing the tax report.
Home Blog How does InCorp’s recruitment outsourcing mechanism work? How does InCorp’s recruitment outsourcing mechanism work? InCorp Editorial Team 13 October 2023 1 reading time Table of Contents As a professional executive search agent, InCorp helps promote job vacancies, screen and shortlist applicants, conduct pre-interviews and arrange final interview with applicants. This can also be topped up with an employee background check.
Home Blog How will a recruitment outsourcing benefit my company? How will a recruitment outsourcing benefit my company? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents Cost reduction, hiring time reduction, hire quality are among the most noteworthy benefits your company can enjoy.
Home Blog Is payroll outsourcing suitable for all businesses? Is payroll outsourcing suitable for all businesses? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents Yes. Payroll outsourcing is suitable for all businesses, whether they are large, medium or small. At Cekindo we work with a range of businesses to provide the ideal payroll solutions.
Home Blog Does payroll outsourcing need to take place at the start of a tax year? Does payroll outsourcing need to take place at the start of a tax year? InCorp Editorial Team 18 August 2023 1 reading time Table of Contents No. It can take place at anytime of the year, when you are ready to transfer your payroll data.