Understanding Financial Statements and Cash Flow
explanatory Essay
1226 words
An entrepreneur’s dream of starting a business is all about getting an idea to the marketplace with great expectations of striking it rich. Little thought ever goes into the steps and methods on how to get there. It takes a lot of effort and forethought setting up strategic plans in areas of cost effectiveness, best in quality, and on time delivery. All three areas require careful financial planning and reporting. This paper discusses the basics in understanding the basics of four different types of financial statements paint a picture of a business’s cash flow. The latter part of the paper will summarize the importance of a company’s financial statement regarding its success in critical decisions to improve its market share in the global market. Everyone wants to be successful. Most people measure success on the basis money. The world operates its daily activities around money, whether it is from the perspective of an individual providing for their family or the perspective of a chief executive officer managing a high profile business. Everyone’s goal is to be a success. In the corporate world of big business, success is always measured based on the bottom line comparing company profitability from one year to the next in comparison to its competitors. The only tool to accurately measure the bottom line of a corporation’s financial standing is through the use of financial statements. Understanding financial statements can be overwhelming. There are four basic financial statements: a balance sheet, an income statement, a statement of retained earnings, and a statement of cash flow (The Four Basic). Each of these four statements is broken down into smaller detail representing the inflow and outflow of financial transa... ... middle of paper ... ...s). The cash flow to shareholders is disbursed as dividends minus the acquiring of new equity (The Essentials). In conclusion, a company’s financial statements regarding its financial position are critical to all concerned. First and foremost, these financial statements provide critical tools for companies to make decisions to improve its share value in the global market of fierce competition. Secondly, they provide accountability to shareholders and stakeholders in the company providing better stability in its business practices and requirements regarding the Securities Exchange Commission (SEC) and General Accepted Accounting Principles (GAAP). Lastly, financial statements paint a picture that gives a measurable to the success of a dream once birthed long ago by an entrepreneur to get an idea to the marketplace with great expectations of striking it rich.
In this essay, the author
- Explains that an entrepreneur's dream of starting a business is all about getting an idea to the marketplace with great expectations of striking it rich.
- Explains that success is measured based on the bottom line comparing company profitability from one year to the next in comparison to its competitors.
- Explains the purpose of the balance sheet, which is to show the financial position or value for a particular period of time.
- Explains that a company's assets are items of value to the company that are both tangible and non-tangible used to provide products or services for sale.
- Lists the company's liabilities on the balance sheet based on their due dates. they are broken down into current and long-term liabilities.
- Explains the shareholders' equity section of the balance sheet known as the company's capital or net worth. the shareholders' portion is their investment in purchased stock minus incurred costs to run the business.
- Explains that the balance sheet shows a snapshot shot of the company's assets minus liabilities and shareholders' equity. the assets column on the right side must equal the liabilities.
- Explains that the second financial statement is the income statement, which takes into account revenue, cash inflow, minus expenditures to operate the business, and cash outflow to determine the company's net worth.
- Explains that the third financial statement used among businesses is the statement of retained earnings. the purpose of this statement is to show shareholders the company's ability to reinvest for future growth in the market.
- Explains that the statement of cash flow summarizes the amount of money flowing in and out of a company.
- Concludes that a company's financial statements are critical to all concerned. they provide critical tools for companies to make decisions to improve its share value in the global market of fierce competition.
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