Financial Statements Essay

979 WordsMay 4, 20124 Pages
FINANCIAL STATEMENTS ________________________ Financial statements are summaries of monetary data about companies or financial institutions. The most common financial statements include the balance sheet, income statement, statement of changes of financial position and statement of retained earnings. Balance sheets provide clear picture of the financial condition of the company as a whole. Balance sheet provides of company’s assets, liabilities and equity. Income statements measure the company’s sales and expenses over a specific period of time. It shows whether a business pulled in a profit during the period of the statement. The statement of changes of financial position shows the sources and uses of a firm’s financial resources, demonstrating trends in the alteration of its capital structure. The statement of retained earnings shows the owner’s equity and revenue earned. Financial statements are necessary sources of information about companies for a wide variety of users. Those who use financial statement information include company management teams, investors, suppliers, government, landers, customers and employees. Users of financial statement information do not necessarily need to know everything about accounting to use the information in basic statements. However, to effectively use financial statement information, it is helpful to know a few simple concepts and to be familiar with some of the fundamental characteristics of basic financial statements. Investors are prime users of the financial statements. They are an individual who makes investments. An investor can act on behalf of other or can make investments for personal account. They need information to help them determine whether they should buy, hold or sell. Investors analyze the financial statement information to determine the company’s overall financial strength. For example, an investor

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