Inclusion Of Financial Statements

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Describe and highlight some of the discrepancies that can appear or deliberately be omitted in these statements. For example the inclusion (or exclusion) of assets, market capitalization, owners’ equity, and particularly (1) non-financial health of the company, (2) what the customers are thinking, and (3) what the competitors are planning. Include examples and if possible, evidence of your own research.
Introduction
A financial statement is a formal record of all financial activities in a firm and helps to state the financial position of a business, person or a registered entity. These reports quantify the financial strength, performance and liquidity of the company in the picture.
There are four types of financial statements. We have the
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Market capitalization is used to determine the size of the firm and its figure is got by multiplying the company shares outstanding to the market price of each share. Market capitalization affects the income statements in that the more a firm makes more income it indirectly leads to increase in the market capitalization. If the net income in a company goes up, the price of the stock also goes up and therefore it increases the market capitalization. This proves that the market capitalization affects the income statement of the net income derived from the firm at the end of each financial period. This also has an effect on the statement of cash flows of the firm. A firm which has a bad image has a lower cash flow compared to a firm which has a good image. The cash inflow in that firm is usually lower than the cash outflows which might lead to …show more content…
The ratios help in determining the financial ability of a firm in the short run. This information helps investors determine if the firm is able to tackle the short term financial problems. If a company can’t tackle the short term financial problems then it will not be able to provide for the investors in the long run. The financial ratios explain more about the profit margins and markups of the firm basically a firm with a profit margin of less than 25% is usually deemed to have poor financial health therefore it is supposed to improve on that in order to be able to compete in the competitive market. However, there is a period when a firm experiences a poor financial health and this has a negative effect on the financial statements and it can lead to the indefinite closure of that firm to the financial statements, poor financial health leads to buying things on credit basis and more borrowings which keeps the company in debt. A company in debt usually has no borrowing power and therefore most of the lending firms don’t consider such firms. Sell of assets is also possible in order to generate funds to cater for the business growth. The sale of assets of a firm without buying any other assets affects the statement of cash flows since more money has gone out and at a rate different from the cash inflows. This can lead to business closure because assets define the net worth of most firms in the business world.

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