A Firm 's Financial Statements By understanding a firm 's income statement, balance sheet, and statement of cash flow, one could easily determine a firm 's performance. Each financial statement is used to illustrate a specific area within a firm 's performance. To best understand the purpose of each financial statement, each will be looked at in greater detail followed by the five types of financial ratios to put the financial statements into perspective.
Income Statement An income statement is the financial report used to detail the revenues and expenses by the firm over a specific duration or accounting period. The details of an income statement break down the major types of expenses as well as revenues generated through business operations. …show more content…
The balance sheet is comprised of two broad areas of information: the assets and the claims against the business assets. Assets are typically categorized as either a current asset or fixed asset. Current assets are usually cash or other assets expected to convert into cash within a year, such as inventory or accounts receivable. Claims against the business assets are liabilities and equity. Liabilities are the financial obligations of the business such as accounts payable and short-term debt. The typical corporate balance sheet owners ' equity is comprised of three different accounts to include preferred stock equity, common stock equity, and retained earnings. If cash flow was the financial detail that wanted to be reviewed, the statement of cash flow is the ideal financial statement to review (Melicher & Norton, 2015, pp. …show more content…
It 's important to realize that the financial statements and the ratios are decision-making tools used both internal and external. The financial statements, especially the balance sheet is typically asked for by lenders prior to extending a loan to a company, and the financial statements are the statements of record if there is ever a tax audit done on the company (Bluest, 2015).
References
Averkamp, H. (2015). Cash Flow Statement Explanation. Retrieved December 5, 2015 from http://www.accountingcoach.com/cash-flow-statement/explanation
Bluest, K. (2015). What Are the Benefits of Financial Statements in Small Businesses? Retrieved from http://smallbusiness.chron.com/benefits-financial-statements-small-businesses-52748.html
Melicher, R. W., Norton, E. A. (2013-10-21). Introduction to Finance: Markets, Investments, and Financial Management, 15th Edition. [VitalSource Bookshelf Online]. Retrieved from
Income Statement An income statement is the financial report used to detail the revenues and expenses by the firm over a specific duration or accounting period. The details of an income statement break down the major types of expenses as well as revenues generated through business operations. …show more content…
The balance sheet is comprised of two broad areas of information: the assets and the claims against the business assets. Assets are typically categorized as either a current asset or fixed asset. Current assets are usually cash or other assets expected to convert into cash within a year, such as inventory or accounts receivable. Claims against the business assets are liabilities and equity. Liabilities are the financial obligations of the business such as accounts payable and short-term debt. The typical corporate balance sheet owners ' equity is comprised of three different accounts to include preferred stock equity, common stock equity, and retained earnings. If cash flow was the financial detail that wanted to be reviewed, the statement of cash flow is the ideal financial statement to review (Melicher & Norton, 2015, pp. …show more content…
It 's important to realize that the financial statements and the ratios are decision-making tools used both internal and external. The financial statements, especially the balance sheet is typically asked for by lenders prior to extending a loan to a company, and the financial statements are the statements of record if there is ever a tax audit done on the company (Bluest, 2015).
References
Averkamp, H. (2015). Cash Flow Statement Explanation. Retrieved December 5, 2015 from http://www.accountingcoach.com/cash-flow-statement/explanation
Bluest, K. (2015). What Are the Benefits of Financial Statements in Small Businesses? Retrieved from http://smallbusiness.chron.com/benefits-financial-statements-small-businesses-52748.html
Melicher, R. W., Norton, E. A. (2013-10-21). Introduction to Finance: Markets, Investments, and Financial Management, 15th Edition. [VitalSource Bookshelf Online]. Retrieved from