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Analysing Financial Statements

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Please help with these two questions, I found information on the internet, however its not clear. Looking for a paragraph each.

Discuss why it is just as important to analyze financial statements as it is to prepare them.

Discuss how business owners and leaders can use financial statement ratios to make decisions.

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The solution analyzes financial statements.

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FINANCIAL STATEMENT ANALYSIS
` There are two basic financial statements - the balance sheet and income statement. According to Keown et al. (2002), financial statements show how an organization is doing financially.

Importance of analyzing financial statements vs. preparing them
Income statement is also called profit and loss statement. It is important to prepare it correctly in order to reflect areas of business activity that include: revenue, cost of goods sold, operating expenses, financing costs, and tax expenses. Correctly and accurately prepared, the resulting figures (e.g. profits or loss) would be realistic.
The balance sheet provides a snapshot of the firm's financial position at a specific point in time. Specifically, it is prepared in such a way those basic company aspects- asset holdings, liabilities, and capital supplied by owners (Keown et al., 2002) is shown. Prepared accurately, the balance sheet could show the company's sources and uses of funds at any point in time. ...

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Elisa Valdez, PhD
Education
  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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