Editable 50 statement of purpose examples graduate school mba phd statement of purpose template excel, All financial statements are essentially historically historical documents. They tell what has occurred during a particular period of time. Yet most consumers of financial statements are concerned about what will happen later on. Stockholders are concerned with future earnings and profits. Creditors are concerned with the company’s future ability to repay its debts. Managers are concerned with the company’s ability to fund future growth. Despite the fact that financial statements are historical documents, they could nevertheless offer invaluable information bearing on each these concerns.
The purpose of a financial statement is to reflect the financial strength or weakness of a small business. Internally, it is used by a company to make fiscal decisions such as hiring new employees or even layoffs. When businesses are financially incapable they seem to lower cost and the fastest way to reduce costs would be to eliminate employees. Today in a struggling economy, workers are considered as costly liabilities, and companies and governments are attempting to reduce those liabilities as far as they can.
Understanding financial statements help owners and managers make better choices tracking the company and plan for future expansion. Financial statements give a very clear grasp of the company’ strengths and weaknesses. They are crucial for business owners that want to succeed and expand their organization.
Although financial statement analysis is an extremely practical instrument, it has two limits. These two constraints demand the comparability of financial data between businesses and also the need to look beyond ratios. Comparison of one company with another can offer invaluable hints regarding the financial health of an organization. Unfortunately, differences in accounting procedures involving businesses sometime makes it tough to compare with the companies’ financial data. As an instance if a single firm values its inventories by the LIFO method and a different firm by average price method, then direct obligations of financial data like inventory valuations are and cost of goods sold between both firms might be deceptive. Some instances enough information are introduced in foot notes to the financial statements to restate information to a comparable basis. The analyst should keep in mind the lack of comparability of this data before drawing any certain conclusion. But despite this limitation in mind, comparisons of key ratios with different businesses and with business averages frequently indicate avenues for further investigation.
Few figures appearing financial statements have substantially significance standing independently. It is the relationship of a single figure to the amount and direction of change over time that are important in financial statement analysis. How can the analyst key in on significant relationship? How can the analyst dig out the critical trends and changes at a company? Three analytical methods are commonly utilized; dollar and percent changes on announcements, common-size statements, and financial ratios formulas.
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