Financial Stmt Review

Financial Statement Review

ACC/561

Financial Statement Review

Financial statements are meant to present the financial information of the company as clearly and concisely possible for both the company and for external audience. Investors, managers and creditors refer to these statements to analyze the past performance and also look into the future to make informed decisions. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings (statement of equity) and cash flow statements, as well as other possible statements.

1) The balance sheet provides information about the liabilities, assets and shareholders equity at any given point of time. Assets for a company include physical property such as manufacturing plants, land, vehicles and equipment, these are part of fixed Assets. The patents, trademarks, investments, inventory and cash are part of current assets. Liabilities are the company owes to their creditors; it includes accounts payable, interest, mortgage and tax payable. Shareholders’ equity is the money that would be left if a company sold all of its assets and paid off all of its liabilities. This residual money belongs to the owners or shareholders of the company after the creditors are paid off.

2) The statement of retained earnings shows the activity between accounting periods by the company’s owners or partners. The key components are the beginning equity balance, additions and subtractions during the period, plus an ending balance. Additions include the net income and additional owner investments, while subtractions include dividend payments and owner withdrawals. The ending balance equals the beginning balance plus additions minus subtractions. (Basu, 2015)

3) The income statement shows revenues minus expenses in the statement for a specific period. Revenues are the inflows to the company by selling goods; expenses are the outflows to the company. It shows the earnings per share (EPS) that shows how much money shareholders would receive if the company decided to distribute all of the net earnings for the period. (Beginners' Guide to Financial Statements, n.d.)

4) Cash flow statements show cash inflows and outflows of the company for a specific period of time. An income statement will tell whether a company made a profit or not, while the cast flow statement will tell the company generated the cash. This statement breaks into three sections for the use of cash such as operating activities, Investing activities and financing activities. (Beginners' Guide to Financial Statements, n.d.)

        Investors will be interested in the income statement; this statement describes the income generated by the company for a particular period. At the bottom of the income statement a calculation of earnings per share is shown, this information is critical for the investor to analyze the dividends paid per share by the company. They also review the statement of retained earnings to review the number of outstanding company's shares. The company’s balance sheet is another source of information where it shows the ratio analysis and an overall financial health of the company.