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    ABC Company: Preferred Financial Statement

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    A. If you had only 1 of the 4 main financial statements available to study to assess the financial health of the company, which would you prefer to have:

    - Income statement
    - Balance sheet
    - Cash flow statement
    - Statement of changes in owner's equity

    State which one you would prefer and why you choose that one specifically.

    B. Out of the 20 or more popular ratios:

    List 4 key financial ratios that could be calculated from these 4 statements.

    For each ratio listed, describe what it tells about the financial health of a company (while it is acceptable to include the ratios' formula, this is not where your answers should be focused).

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    Solution Preview


    I would prefer to have cash flow statement. Cash flow statement relates to the balance sheet and the income statement of the company. It shows the various types of impact on the cash position of the firm by using information related to the balance sheet, income statement and the statement of change in shareholder's equity. It is divided in three parts cash from operating activities, cash from investing activities and the cash from financing activities. Cash from operating activity includes the cash actually generated from the current year operation of the company. Cash from investing activity includes the cash generated or gone out for the investment activities of the company. It generally includes the gain or loss from sale of asset, payment of dividend, interest payment on bond etc. Whereas cash from financing activity uses ...

    Solution Summary

    This solution discusses the preferred financial statement.