Editable employee benefit statement template doc example, Financial statements are formal documents of their financial activities of a company, person, or other thing. It offers an overview of a business or person’s fiscal condition in both brief and long duration. It is a tool used to communicate financial information of an entity to those who wishes to earn determination and informed decisions about the entity’s financial position, results of operation and cash flows. There are four financial statements Balance Sheet, Income Statement, Statement of Cash Flows and Statement of changes in owner’s equity. These four financial statements have unique intent but they are interrelated.
The use of a financial statement will be to reflect the financial weakness or strength of a business. Internally, it’s used by a company to make fiscal decisions like hiring new employees or layoffs. When companies are financially fighting they look to reduce cost and the quickest way to lower costs would be to eliminate workers. Today in a struggling market, employees are considered as expensive obligations, and businesses and governments are attempting to reduce those obligations as far as possible.
Knowing financial statements help owners and managers make better choices tracking the business and strategy for future growth. Financial statements give a clear grasp of the company’ strengths and weaknesses. They’re crucial for business owners who wish to succeed and expand their business.
Although financial statement analysis is an extremely useful instrument, it has two limitations. These two limitations demand the comparability of financial information between companies and the need to look past ratios. Comparison of one company with the other can provide valuable hints about the financial health of an organization. Unfortunately, differences in accounting procedures between businesses sometime makes it difficult to compare with the firms’ financial data. By way of example if one company values its inventories from the LIFO method and a different firm by average cost method, then direct obligations of financial information like inventory valuations are and cost of goods sold between the two businesses could be deceptive. Some times enough information are introduced in foot notes to the financial statements to restate data to a similar basis. Otherwise, the analyst should remember the lack of comparability of the data before drawing any certain conclusion. Nevertheless, in spite of this restriction in mind, comparisons of important ratios with different companies and with business averages frequently suggest avenues for further investigation.
A company’ financial statements are an immediate connection of how well a business is doing and if they are in a position to hire new employees or layoffs. Another alternative for companies to cut costs is by sending as much work abroad where the salaries are far lower and where the regulatory is significantly simpler. Nowadays, most big corporations only want to have as many U.S. employees as absolutely needed. In a world in which labor has been globalized, some corporations shell out enormous amounts of money to American employees when they can save paying lower wages to employees abroad. In the previous times, a person could go to school, get a good paying job with a single company for 30 years and retire with a great pension. Unfortunately for the current creation, corporations don’t have the identical loyalty, as soon as a company reaches a monetary barrier; one of the simplest and fastest ways to reduce costs is to eliminate its own employees.
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