Editable conflictmineralspolicy2018pdf mettex conflict minerals policy statement template excel, All financial statements are essentially historically historic records. They tell what has happened during a specific period of time. Yet most users of financial statements are somewhat concerned about what’s going to occur in the future. Stockholders are worried about future earnings and benefits. Creditors are concerned with the organization’s future ability to settle its debts. Managers are worried about the firm’s ability to fund future growth. Regardless of the fact that financial statements are historical records, they can nevertheless provide invaluable information bearing on each these concerns.
The use of a financial statement will be to reflect the financial weakness or strength of a business enterprise. Internally, it is used by a company to produce financial decisions like hiring new employees or layoffs. When companies are financially struggling they seem to decrease cost and the fastest way to decrease costs is to remove employees. Today in a struggling economy, employees are regarded as expensive liabilities, and businesses and governments are trying to decrease those obligations as far as possible.
Managers will also be widely concerned with the financial ratios. The ratios offer hints of how well the organization and its business units are performing. Some of these ratios would ordinarily be utilized in a balanced scorecard approach. The particular ratios selected are contingent on the business’s strategy. For instance a company that wants to emphasize responsiveness to customers may closely monitor the stock turnover ratio. Since supervisors must report to shareholders and might wish to raise funds from external resources, managers must focus on their financial ratios used by external inventories to evaluate the provider’s investment potential and creditworthiness.
Though financial statement analysis is an extremely useful tool, it has two limitations. Both of these constraints demand the comparability of financial information between companies and also the need to check beyond ratios. Comparison of one company with the other can offer invaluable clues about the financial health of an organization. Unfortunately, differences in accounting procedures involving businesses sometime makes it tough to compare with the firms’ financial information. For instance if one firm values its inventories from the LIFO method and the other firm by average cost method, subsequently direct obligations of financial data like inventory valuations are and cost of goods sold between the two businesses may be misleading. Some times enough information are presented in foot notes to the financial statements to restate data to a similar basis. Otherwise, the analyst must keep in mind the absence of comparability of this information before drawing any definite conclusion. Nevertheless, even with this restriction in mind, comparisons of key ratios with different businesses and with business averages often indicate avenues for further investigation.
Few figures appearing financial statements have much importance standing independently. It is the relationship of a single figure to the quantity and direction of change over the years that are important in financial statement analysis. How can the analyst crucial in on important relationship? How does the analyst dig the important trends and changes in a company? Three analytical methods are commonly used; dollar and percent changes on announcements, common-size statements, and financial markers formulations.
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