Professional and best 500 word personal statement samples online personal statement template for job application example, Financial statements are all formal documents of the fiscal activities of a business, person, or other entity. It gives an overview of a company or person’s financial condition in both brief and long term. It is a tool used to convey financial information of a thing to those who would like to make determination and informed decisions concerning the entity’s financial position, results of operation and cash flows. There aren’t any financial statements Balance Sheet, Income Statement, Statement of Cash Flows and Statement of changes in owner’s equity. All these four financial statements have special purpose but they are interrelated.
The use of a financial statement is to reflect the fiscal weakness or strength of a business enterprise. Internally, it’s used by a company to make fiscal decisions such as hiring new workers or even layoffs. When businesses are financially unable they look to decrease cost and the fastest way to lower costs would be to eliminate workers. Now in a struggling market, workers are considered as expensive liabilities, and companies and authorities are working to decrease those liabilities as far as possible.
Understanding financial statements assist owners and managers make better decisions monitoring the company and plan for future growth. Financial statements give a very clear understanding of the business’ strengths and weaknesses. They are critical for business owners that intend to succeed and expand their business.
Although financial statement analysis is a highly practical tool, it has two limitations. Both of these limitations demand the comparability of financial information between businesses and also the need to look past ratios. Comparison of one firm with another can offer invaluable hints about the financial health of an organization. Unfortunately, gaps in accounting procedures involving businesses sometime makes it difficult to compare with the companies’ financial data. For instance if a single company values its stocks from the LIFO method and a different company by average price method, subsequently direct obligations of financial information such as inventory valuations are and cost of goods sold between the two firms might be misleading. Some instances enough data are presented in foot notes to the financial statements to restate information to a comparable basis. The analyst must remember the lack of comparability of this data before drawing any certain conclusion. But even with this restriction in mind, comparisons of important ratios with different businesses and with industry averages frequently suggest avenues for further investigation.
Few characters emerging financial statements have considerably importance standing by themselves. It’s the connection of a single figure to the amount and direction of change over the years that are important in financial statement analysis. How can the analyst crucial in on important relationship? How can the analyst dig out the important trends and changes in a company? Three analytical methods are widely utilized; dollar and percent changes on statements, common-size statements, and financial ratios formulations.
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