Financial Statements: importance, uses, information
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1. What does the income statement, balance sheet, and cash flows tell you about the company? Why is this statement important? What decisions could be made by using this statement?
2. What information is provided in these statements that will help you in making these business decisions. What information is not provided?
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Solution Summary
The 579 word solution responds to all the questions with detailed explanations including examples, as appropriate. The definitions of each of the financial statements includes narrative explaining what types of information can be garnered from each financial statement. The lmitations of each statement are also discussed.
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1. The income statement tells the reader about the revenues and expenses for the past year and often presents a comparable statement to the year immediately prior. This statement is important because a reader wants to understand about growth and profits of a company. To understand the growth of a company, it must be compared to a base line of some sort: either other players in the industry, or to itself in years past. Investors or creditors would be interested to understand these concepts.
The balance sheet discloses the financial position of a company at a point in time. It lists all the assets, liabilities and equity of the company. A classified balance sheet also tells the reader about the order of liquidity of the assets and liabilities (that means, whether they are current or long term and discloses the order in which the accounts are expected to be converted to cash). A balance sheet is important to a ...
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