Financial Statement Analysis
Arvey G.F. Guihama
ACC/290 Principles of Accounting 1
November 21, 2011
In Accounting, there are several statements that will show how a business is doing. These statements can show whether a company is profitable, how much revenue comes in every year or if a company is worth investing in. There are basic financial statements that companies use to gauge profitability and performance.
Balance sheets are used to display a period of time of what a business owes to creditors and what it owns as far as assets i.e. equipment, office space, etc. The balance sheet also tells when claims have been reported against assets and what assets are owed. “Claims to assets are subdivided into two categories which are claims of creditors and claims of owners”. Kimmel, Weygandt, Kieso (2011) Creditors that analyze a company’s balance sheet do it to see the chance or probability that they are going to be paid back. The balance sheet will also be used to determine whether cash on hand is significant to where it can be disbursed in case of immediate needs. “The balance sheet will also be used to analyze the relationship between debt and stockholder’s equity to determine whether the company has a good debt to income ratio”. Kimmel et al. (2011)
Income statements are being used in business to display how successfully a business was during a period of time or if they still are. Income statements also report its revenues and expenses for that company. The income statement will list the company’s revenues and will be followed by its expenses. “The income statement lists the company’s net income or net loss by deducting expenses from revenues”. Kimmel et al. (2011). Creditors also use the...