The income statement is important because it will show whether the company’s revenue exceeded expenses for a specific period resulting in net income or the amount the company may have lost because the expenses exceeded the revenue. The retained earnings statement is equally important because it will indicate the exact reason why the company’s retained earnings increased or decreased over the reporting period. The balance sheet is important because it is the overview of the company’s financial condition at the time of the reporting period and the statement of cash flow’s is important because “Reporting the sources, uses, and change in cash is useful because investors,creditors, and others want to know what is happening to a company’s most liquid resource.” (Weygandt,
TARGET CORPORATION FINANCIAL ANALYSIS AND INTERPRETATION The ability of a business to meet its short-term cash requirements is called liquidity. It is affected by the timing of a company’s cash inflows and outflows along with prospects for future performance. Efficiency refers to how productive a company is in using its assets, and it is usually measured relative to how much revenue is generated from a particular level of assets. They are both important and complementary. Two measures for evaluating a business's short-term liquidity are working capital and the current ratio.
The Four Financial Statements Merced Villalobos ACC/290 January 11, 2012 Eleazar Pando The Four Financial Statements There are four basic financial statements. The first statement is an income statement that shows the companies’ revenues and expenses. The second statement is a retained earnings statement that shows the amount and causes of changes of retained earnings in a given period of time. The third statement is a balance sheet that shows what the business owns and what it owes. The fourth is a cash flow statement that shows where the business got earnings in a period of time and where that money was used.
The computation of ratios facilitates the comparison of firms which differ in size. Ratios can be used to compare a firm's financial performance with industry averages. In addition, ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time. Because Ratio Analysis is based upon Accounting information, its effectiveness is limited by the distortions which arise in financial statements due to such things as Historical Cost Accounting and inflation. Therefore, Ratio Analysis should only be used as a first step in financial analysis, to obtain a quick indication of a firm's performance and to identify areas which need to be investigated further Profitability.
P7 Solvency is when a business is able to pay is expenses as it has money available within the business. To determine solvency, businesses can use ratios such as current ratio and acid test ratio. These ratios allow businesses and potential investors to see how well that are able to meet their liabilities. Current Assets Current ratio = Current liabilities The acid test ratio shows the assets compared to liabilities, like the current ratio, but by taking out the stock figure from the current assets, it shows how well a business can meet its liabilities without having to sell stock, Current assets - stock Acid test ratio = Current liabilities Profitability Ratios can also show how profitable a business really is either as a snapshot or over time. There are three ways of working out how profitable a business really is: * Gross profit percentage – This calculation shows gross profit as a percentage of the turnover.
The retained earning statement reports changes in the interest of the company and retained interest in profits or surplus. This statement typically contains profits and losses, dividends, and issuance of stock. This report is given to the board of directors for a company, issued during a press release, or during a quarterly report earnings statement. The balance sheet tracks the assets, liabilities, and stockholders equity. The assets on the sheet are company holdings.
The statement of cash flows contains the information to show where the business obtained cash during a period of time and how that cash was used. The balance sheet indicates any assets and claims to assets at a certain point in time, the claims are
The purpose of the financial statement audit is to ensure the entity being audited is preparing the financial statements in conformance with General Accepted Accounting Principles (GAAP). The information is important to investors, managers, banks,
Inventory and warehouse cycle Inventory accounts for a large portion of a company’s assets and is one of the more significant accounts presented on the financial statement. The effects of inventory can complicate physical control, contributing to more time spent when conducting the audit. For that cause, when constructing audit programs for inventory, the auditor should want to develop a plan such where risks are reduced to acceptable levels for the inventory cash cycle. Such a plan includes description of nature, extent of the planned risk assessment procedures, and above all, timing. In preparing the audit program for Apollo Shoe, Inc. the auditor should consider the primary objective which is to provide assurance to the stakeholders, stockholders, and other interested parties that the financial statements fairly account for raw materials, finished goods, work-in
In this paper, the purpose of accounting and the four financial statements and how they correlate with each other will be discussed. Finally, the subject of internal and external users of financial information will be identified. The Four Financial Statements Accountants have the ethical responsibility to report financial information accurately. The information given to users should always be reliable. Furthermore, report information should be presented to users in an easily,