How the Balance Sheet and Income Statement Can Be Used Independently

After reading through the articles for this week and well as working on the spreadsheets for Gemini, I was really able to more fully understand how the balance sheet and income statement can be used independently as well as together in order to ascertain the performance of an organization.

By using these statements to calculate different ratios we are able to look at ratios that will give us clues to how a company is performing in the areas of liquidity and profitability specifically. While the article Introduction to Financial Ratios and Financial Statement Analysis from Bruns (2004) tells us that these numbers can still vary due to the gray areas of accounting we have been discussing in prior weeks, they can still give us some idea of how the company is doing.

Some of the ratios regarding profitability that are very common to examine are Return on Assets (ROA), Return on Investments (ROI), and Return of Equity (ROE). While I do not have background in financial reporting at all, these are definitely terms that I have heard of a were familiar to me. Basically, the ROA can tell us how well a company is utilizing its assets to make money, ROI tells us how well they are using their investments (like long-term debt and equity) to make money, and ROE is specifically how well a company is using it's stockholders equity to make money.

I think all of these in combination can be used as a good indication of how well a company is using the resources and would definitely be ratios that investor would be interested in looking at so that they can see that their investment will be used wisely.

Some really good profitability ratios that can be calculated that would be especially useful to a manager would be that ratios we can calculate regarding gross profit margin, operating profit margin, and net profit margin. All of these statistics are able to show us how much money the company is making for every dollar