Conducting business is all about making decisions. Firms need to decide whether to reinvest their profits or pay dividends. Lenders need to decide whether or not to loan money to a particular firm and what interest rate is appropriate to covers the risk associated with lending. Investors need to determine which stocks will provide the greatest return for the least amount of risk. For all the decisions listed thus far (and many more that were not mentioned), interested parties use the financial statements of a firm to aid in making these decisions. In this paper, we 'll look at the three major components of financial statements - the income statement, the balance sheet, and the statement of cash flows - and how those statements help stakeholders make business decisions.
The first major component of a firm 's financial statement is the income statement. The income statement is provides a summary of expenses and revenues. The income statement is probably the simplest of all the financial statements and is perhaps one of the most important as it shows, at a glance, the profits and loses accrued during the reporting period. As firms are in the business of profit, it 's clear why the income statement is an important tool that stakeholders can use to evaluate a company 's health. Some of the major expenses listed on the income statement are cost of goods sold (COGS), depreciation, general & administrative (G&A), interest, and income taxes. COGS are costs directly associated with generating revenues, like raw materials, overhead, and labor. While COGS will vary with the level of output produced, G&A expenses are often fixed and include costs like salaries and fees. ...
... middle of paper ...
In conclusion, firms use financial statements to help managers, investors, and lenders all make informed business decisions by providing a snapshot of the overall health of the firm. The income statement addresses profits and losses. The balance sheet lists the assets, liabilities, and equity of the firm. And the statement of cash flows analyzes the company 's cash account. Taken together, these statements paint a picture of a firm 's current financial situation as well as its potential future performance.
Investopedia. (2015, November 8). Series 65: The Balance Sheet. Retrieved from Investopedia.com: http://www.investopedia.com/exam-guide/series-65/quantitative-methods/balance-sheet.asp
Melicher, R. W., & Norton, E. A. (2014). Introduction to Finance: Markets, Investments, and Financial Management 15th Edition. Hoboken, NJ: John Wiley & Sons.
Need Writing Help?
Get feedback on grammar, clarity, concision and logic instantly.Check your paper »
Analyze the importance of financial and non-financial measures that can be used by an international organization to achieve organizational objectives
- In every business industry one must consider the importance of financial and non-financial measures, which provides benefits in order to accomplish primary organizational objectives. The success of the workforce depends mostly on how mangers and employees measure their financial and non-financial performances. To be able to comprehend the concept of how businesses attempt to achieve organizational aims, one must define financial performance, which is ‘a subjective measure of how well a firm can use assets from its primary mode of business and generate revenues’ (http://investopedia.com/).... [tags: business, corporations]
1447 words (4.1 pages)
- Introduction In this report, there will be an overview, strategic direction and organizational structure of Nestlé S.A. This prompted investor groups who are interested to invest in this company and to decide whether they should invest their funds with Nestlé S.A. The purpose of this report is an opportunity to gain knowledge of how this company evolved and how they operate their business. This will not provide any information on the company situation, marketing strategy, financial performance, and company outlook.... [tags: Nutrition, Health, Health care, Management]
1767 words (5 pages)
- 5. Discuss the difference between accreditation and certification. Discuss why a health plan may or may not participate in a voluntary accreditation program. In the health industry, accreditation and certification are related but not interchangeable. Certification is a particular set of skills up to an established criterion that a certified individual should have the competence to perform. In most cases, certification includes testing; however certification can also include or be based on education and experience alone.... [tags: Health Care]
893 words (2.6 pages)
- Every Number Tells a Story Financial statements can provide a wealth of information about a given organization. These statements provide information about the company’s financial position, cash flows, operations, performance and changes in the financial position. This information may be used as part of the decision making process for employees, shareholders, investors and competitors. Based upon these financial statements, key ratios are used to provide additional insight as to the financial health of a given company.... [tags: Income statement, Financial statements, Cash flow]
880 words (2.5 pages)
- Post-Merger Analysis In today’s market segment, there is an uncertain economic and regulatory environment for the health care industry. In regards to the current state of this market, organizations should have a well-planned operational system implemented for such merger and acquisitions opportunities. Mergers and acquisitions are vigorous business tactics that support a firm in external growth and development, while providing competitiveness in gaining market share and financial efficiencies. The key financial drivers that will cause an organization to merge could stem from several factors.... [tags: Health care, Health insurance, Economics]
1226 words (3.5 pages)
- Organizational design and structure considerably impacts a corporation’s effectiveness and ability to execute the planned business strategy. The chosen structure determines how performance tasks are distributed among managers and employees of an organization, simply incorporating significant elements such as formalization, chain of command, departmentalization, work specialization, span of control, and centralization/de-centralization (Trident 2016). The following describes the Golden Age Hospital (GAH)/Community Clinic (CC) ’s mission, services, and structure to be developed and implemented in order to provide excellence in the community’s senior population.... [tags: Health care, Medicine, Health insurance, Health]
1111 words (3.2 pages)
- Carpenter argues that a business that relies on price competitiveness to win customers will only remain competitive if it is able to sustain reduced inputs costs or rather operating above its breakeven point. Such businesses would not compete in price wars that would force them to operate below their break even point. Customers would go for the next cheaper substitute. Customer loyalty becomes very important in such situations. It is for this reason business mission should not only focus on profit making but address the interest of all the relevant stakeholders, and the values of such businesses.... [tags: Statements, Strategic planning, Shareholder]
973 words (2.8 pages)
- Importance of the Financial Statements Ronald Campbell Principles of Accounting I ACC205 Keith Graham December 6, 2010 Importance of the Financial Statements In this paper I will talk about how important the financial statements are and why they need to be accurate for the outside business interests, and why they are not important for lenders and other outside investors. The first thing we should ask you what is a financial statement. Financial statements “are business documents that report on a business in monetary terms” (Hornger & Harrison 2007, pg.17).... [tags: Financial statements, Income statement, Enron]
979 words (2.8 pages)
- Accounting information is a fundamental part of accounting it allows businesses to know where they financially stand, imagine a world without financial statements how would companies and organisations function. Financial statements are like gold in the financial world and are significant in the accounting industry. With an ever evolving world financial statements are now available on the web for anyone to download, in this assignment I will be examining why financial statements are so popular with different users.... [tags: Financial statements]
1470 words (4.2 pages)
- 1. Financial statements are divided into two main categories which are general and special purpose financial reports. As for the general purpose financial reports, the major users are owners, shareholders, managers, customers, the general public and so on. Turning to the special purpose financial reports which are usually required by lenders, government and creditors. These reports need to record different information for different user’s need. Profit is the most significant element for the owners because they would like to know it from the Restaurant Brands Ltd (RBD)’s statement of comprehensive income.... [tags: Financial statements, Balance sheet]
1017 words (2.9 pages)