financial statement

Examples of financial statement in the following topics:

• Uses of the Financial Statement

  • For large corporations, these statements are often complex and may include an extensive set of notes to the financial statements and explanation of financial policies andmanagement discussion and analysis.
  • Notes to financial statements are considered an integral part of the financial statements.
  • Prospective investors use financial statements to perform financial analysis, which is a key component in making investment decisions.
  • A lending institution will examine the financial health of a person or organization and use the financial statement to decide whether or not to lend funds.
  • One of the uses of financial statements is as a budgeting tool, as in this example.

• Limitations of Financial Statements

  • Financial statements can be limited by intentional manipulation, differences in accounting methods, and a sole focus on economic measures.
  • In the United States, especially in the post-Enron era, there has been substantial concern about the accuracy of financial statements.
  • Another limit to financial statements as a window into the creditworthiness or investment attractiveness of an entity is that financial statements focus solely on financial measures of health.
  • Even traditional investment analysis incorporates information outside of the financial statements to make organizational assessments.
  • Financial statements can include a number of inaccuracies and limitations that affect the way a company can be viewed.

• Evaluating Financial Statements

  • With a few exceptions, the majority of the data used in ratio analysis comes from evaluation of the financial statements.
  • Ratio analysis is a tool for evaluating financial statements but also relies on the numbers in the reported financial statements being put into order to be used as ratios for comparison over time or across companies.
  • Financial statements are used as a way to discover the financial position and financial results of a business.
  • Ratios put this financial statement information in context.
  • The evaluation of a company's financial statement analysis is a form of fundamental analysis that is bottoms up.

• Defining the Financial Statement

  • Financial statements report on a company's income, cash flow and equity.
  • A financial statement is a formal report of the financial activities of a business, person, or other entity.
  • Financial statements are a key component of accounting; the process of communicating information about a financial entity .
  • An entity's financial statement typically includes four basic components: a balance sheet, income statement, cash flow statement, and statement of changes in equity:
  • For complex entities, financial statements often include an extensive set of notes as an explanation of financial policies.

• Impact of Inflation on Financial Statement Analysis

  • General price level changes creates distortions in financial statements.
  • In most countries, primary financial statements are prepared on the historical cost basis of accounting without regard either to changes in the general level of prices.
  • Accountants in the United Kingdom and the United States have discussed the effect of inflation on financial statements since the early 1900s .
  • General price level changes in financial reporting creates distortions in financial statements such as:
  • Many of the historical numbers appearing on financial statements are not economically relevant because prices have changed since they were incurred.

• Interpreting Ratios and Other Sources of Company Information

  • Financial statement analysis, also known as financial analysis, is the process of understanding the risk and profitability of a company through the analysis of that company's reported financial information.
  • In financial statement analysis, comparisons and relationships can be shown in the following ways:
  • The vertical method is used on a single financial statement, such as an income statement.
  • It is possible to calculate a number of ratios from the same set of financial statements.
  • A ratio can show a relationship between two items on the same financial statement or between two items on different financial statements (e.g.balance sheet and income statement).

• Using Financial Statements to Understand a Business

  • Internal and external users rely on a company's financial statements to get an in-depth understanding of the company's financial position.
  • Internal and external users rely on a company's financial statements to get an in-depth understanding of the company's financial position.
  • Then the various calculations are performed on the reformulated and adjusted financial statements.
  • If an error is found on a previous year's financial statement, a correction must be made and the financials reissued.
  • Explain how a company would use the financial statements to perform risk analysis and profitability analysis

• Defining the Statement of Cash Flows

  • A statement of cash flows is a financial statement showing how changes in balance sheet accounts and income affect cash & cash equivalents.
  • In financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities.
  • Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.
  • The cash flow statement has been adopted as a standard financial statement, because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
  • Indicate the purpose of the statement of cash flows and what items affect the balance reported on the statement

• Defining the Income Statement

  • Income statement is a company's financial statement that indicates how the revenue is transformed into the net income.
  • Income statement, also referred to as profit and loss statement (P&L), revenue statement, statement of financial performance, earnings statement, operating statement or statement of operations, is a company's financial statement that indicates how the revenue (cash or credit sales of products and services before expenses are taken out) is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as Net Profit or "bottom line").
  • The important thing to remember about an income statement is that it represents a period of time.
  • The income statement can be prepared in one of two methods.
  • Income statements should help investors and creditors determine the past financial performance of the enterprise, predict future performance, and assess the capability of the business to generate future revenue streams through the reporting of income and expenses.

• Limitations of the Statement of Cash Flows

  • The cash flow statement has been adopted as a standard financial statement because it eliminates allocations, which might be derived from different accounting methods, such as various timeframes for depreciating fixed assets.
  • Although the cashflow statement is a very useful tool of financial analysis, it has its own limitations which must be kept in mind at the time of its use .
  • On its own, the statement of cash flows cannot be used to determine the financial position of a company.
  • The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time.
  • These two financial statements reflect the accrual basis accounting used by firms to match revenues to the expenses associated with generating those revenues.