Financial Analysis

explanatory Essay
1607 words
1607 words

Financial statements are vital for any organization regardless of the size or method of ownership. The financial statements of an organization include the balance sheet, the income statement, the statements of owners’ equity and the statement of cash flows. The reports provided by financial statements are necessary for internal and external use. Ratios for analysis and comparison measure an organization’s performance (Holt, 2014, p. 22) and are prepared using the information from the financial reports. Financial analysis judges an organization’s history and collects information to project its future (Holt, 2014, p. 25). To examine the ongoing profitability of an organization, pro forma financial statements are prepared. Projecting Earnings and Cash Flow Pro forma financial statements forecast or project the financial statements for the future (Ross, Westerfield, & Jordan, Essentials of Corporate Finance, 2011, p. 271). Projecting earnings and cash flow shows future expectations. These statements are essential for assessments by internal and external groups to use in planning, operating, investing and financing decisions. Financial institutions use pro forma statements for an organization’s loan consideration. The pro forma statements forecast whether an organization can cash flow the loan payments. Pro forma statements provide insight into the likelihood of the organization remaining solvent. Qualitative analysis, quantitative analysis and sensitivity analysis are the three steps in developing pro forma financial statements. Qualitative analysis gauges the industry as a whole and uses the same process to analyze an organization. Robert Morris Associates, Standard & Poor’s, Value Line, and others provide surveys for the industry... ... middle of paper ... ...nd unprejudiced analyses. II Timothy 6:9 (NIV) tells us the desire for riches leads to temptation and these harmful desires ruin men. The numbers a manager presents must be impartial and as accurate as possible. The desire for money and success should not overshadow honesty and truth when preparing pro forma financial statements. Works Cited Fackler, M. (Ed.). (2006). 500 Questions & Answers from the Bible. Uhrichsville, OH: Barbour Publishing, Inc. Holt, R. N. (2014). Understanding Corporate Financew (Fifth ed.). Ivy Software. Holy Bible - New International Version. (1986). Zondervan. Ingram, C. (2007). Good to Great in God's Eyes. Grand Rapids, MI: Baker Books. Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2011). Essentials of Corporate Finance (Seventh ed.). New York, NY: McGraw-Hill/Irwin. Warren, C. S. (2012). Accounting. Mason, OH: Cengage Learning.

In this essay, the author

  • Explains that financial statements are vital for any organization regardless of its size or method of ownership. ratios for analysis and comparison measure an organization’s performance and are prepared using the information from the financial reports.
  • Explains that capital investments increase firm's assets by providing returns for a period greater than one year. capital budgeting evaluates capital investment proposals and uses qualitative and quantitative analysis.
  • Explains that capital budgeting is necessary when considering mergers or acquisitions. acquisitions occur when one organization absorbs another and adds value to the acquiring organization.
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