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Financial Statements
Identify the four basic financial statements.
The four basic financial statements include: the balance sheet, income statement, owners' equity and cash flows. The balance sheet is when there is a focus on the current financial strengths or weaknesses inside a firm. This gives managers, employees, investors and regulators the ability to determine what issues are impacting the company. (Ingram, 2011) ("Four Financial Statements," 2010)
The income statement is concentrating on the profits or losses that were made by a company over a specified period of time. This is designed to provide stakeholders with more precise information about: the activities of the firm and their impact on the bottom line results. When this happens, the company is providing increased amounts of transparency and clarity during the process. (Ingram, 2011) ("Four Financial Statements," 2010)
The owners' equity is looking at how effectively the company is using the funds they receive from investors. This is giving them insights about: the effectiveness of specific programs and how it is influencing their total return. In the future, this information is used to decide if the current management structure is meeting the larger objectives of the firm efficiently. (Ingram, 2011) ("Four Financial Statements," 2010)
The cash flows are examining the total amounts of money a firm is making over a specified...
This is used to decide if there are sufficient funds for the organization to: pay its expenses, continue with current dividends and if any changes will impact their profit margins. When this takes place, stakeholders will have a clearer view of the effect of specific activities on the company. (Ingram, 2011) ("Four Financial Statements," 2010)
Describe the purpose of each of the four financial statements.
The balance sheet is offering an overview of the company's strategy and how it affected their earnings. This is used as starting point when valuing the common stock and fixed income securities. While the income statement, is illustrating how profitable the organization was over a specific period of time. This gives them insights about the way certain activities impacted the bottom line results of the firm. (Ingram, 2011) ("Four Financial Statements," 2010)
These two areas are designed to provide general and precise information on the programs that are affecting the company's profit margins. When this happens, investors and analysts can more accurately value the price of the stock / fixed income securities. (Ingram, 2011) ("Four Financial Statements," 2010)
The owners' equity is determining if the management is: squandering or efficiently utilizing the working capital they receive from investors. During the annual proxy vote, many large shareholders will compare these…
References
Four Financial Statements. (2010). Quick MBA. Retrieved from: http://www.quickmba.com/accounting/fin/statements/
Ingram, D. (2011). The Four Primary Financial Statements. Chron. Retrieved from: http://smallbusiness.chron.com/four-primary-financial-statements-companies-use-11294.html
Kimmel, D. (2010). Financial Accounting. Hoboken, NJ: John Wiley & Sons.
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