Corporate Management

Corporate Management

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Corporate Management

Indeed, the balance sheets, income statement and the statements of cash flows act as important tools to diagnose the performance of a project.  The balance sheet lists the assets of the business and the claims to those assets in relation to the liabilities and owner’s equity of the business. In this regard, the balance is divided into three sections which include the assets, liabilities and equities of the business (cleverism.com). The assets represent the tangible and intangible items owned by the organization while the liabilities represent the claims to those assets. The equities represent the ownership in the form of shares in the company by its owners. These sections can be used to diagnose the performance of a project and determine the shareholder’s value in relation to the value of the assets relative to the claims to those assets (liabilities). Ideally, the balance sheet shows the snapshot of the current financial position. By comparing the balance sheets of the company in multiple periods, one may identify the performance of a project in regard to the level of increases in the assets relative to the liabilities. An increase in the value of the assets and owner’s equity in a project is an indicative of a project that generates favorable shareholder’s value.

The income statement is a listing of the incomes and expenses of the business, an enumeration which gives the net earnings of a business. The income statement is an important tool for evaluating the performance of a project based on the value of the bottom line earnings (cleverism.com). Ideally, a good project should be capable of producing consistent and positive net incomes over time. Positive net earnings from the project translates to higher shareholder’s value since  the net incomes are re-invested in the business to generate more shareholder value while others are distributed to the shareholder’s in the form of earnings. Projects with negative earnings are an indication of poor project quality that should not be undertaken.  

Finally, the statement of cash flows records the cash movements and cash position of the business. The cash flow statement is divided into three sections depicting the cash flows from operating activities, cash flows from investing and cash flows from financing activities. In this regard, the cash flow statement show how the business has been in generating cash from its major activities and shows the change in cash from the previous period. The cash flow serves as an important tool for evaluating the performance of a project in regard to its ability to generate cash flows especially in the investing section. A high performing project should be capable of producing positive cash inflows and result to higher cash positions for the business. If the project is capable of generating favorable cash inflows, this results to higher shareholder’s value in terms of earnings distribution to the shareholders in the form of dividends and reinvestments of the cash to generate more value to the customers.