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financial statements

1. Name four financial statements and explain four ways how managers use financial statements. Which statement is easiest to develop? Why or why not.

2. How do managers incorporate ratios into their financial planning? Are some ratios more important than others? Why or why not.

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The four financial statements are:

1) Income statement
2) Cash Flow Statement
3) Statement of Retained Earnings
4) Balance Sheet

The income statement shows the profit/loss made by company during the financial year. It displays all the revenues earned by the company along with total costs incurred by the company for earning these revenues and thus, the subsequent result of the operations of the company during a particular financial year. The profit or loss calculated by the income statement is added or subtracted from the statement of retained earnings.

Statement of retained earnings, also known as Statement of owners' equity, is one of financial statements, it explains the changes in company's retained earnings over the reporting period.

Retained earnings appear on the balance sheet under "stockholders equity" and most commonly are influenced by income earned by the company and dividends paid out. The retained earnings account on the balance sheet is said to represent an "accumulation" because of the fact that the figure usually grows from one year to the next.
The general formula can be expressed as following:
Ending Retained Earnings = Beginning Retained Earnings + Investments - Dividends Paid + Income.

Therefore, the Statement of retained earnings uses information from the Income statement and provides information to the Balance Sheet.

source: en.wikipedia.org/wiki/Statement_of_retained_earnings

Balance Sheet provides information to stakeholders of the company about the financial health of the company on a particular date. As mentioned above, the retained earnings is shown in the Balance Sheet under Stockholder's equity.

All these statements are interlinked with each other. At the end of the year, the changes in the income statements leads to changes in the ...

Solution Summary

Name four financial statements and explain four ways how managers use financial statements.