Private companies don't provide information on their cash flow and have greater opportunities to engage in financial benefits not available to public companies, such as:. Other concerns regarding a business' value can depend on what a buyer sees in the business.
If the business represents a strategic purchase, a higher price might be garnered even for an over-valued private business. If a buyer is a minority buyer, they may want to pay less due to the minimal amount of control they can exert on the business Antia, para.
Basic financial statements include the balance sheet, the income statement, cash flow statement and notes to account. There are different types of reports because different types of information are needed to effectively manage a company and plan for the future. Sometimes companies use financial reporting information internally, and in some cases they are required to release this information externally. Tracy called cash the "lubricant" of business. Without cash it is difficult for a business to function and it increases the likelihood that a business may fail.
But, Tracy warned that cash flows only show part of the picture and give no information about the business' profit or financial condition. Since cash flows only show part of the picture, other types of financial reports are needed.
The general categories on balance sheets are assets and liabilities. A publicly traded firm also includes shareholder equity. A typical balance sheet shows assets a company owns. Assets include cash, accounts receivable, inventory and any prepaid expenses. Balance sheets also record property the company owns and any depreciation on assets.
The balance sheet is a two-sided report because it records assets on one side and liabilities on the other. Liabilities include accounts payable and accrued expenses, income tax owed, loans and stockholders' equity. Stockholders' or shareholders' equity is any claim that owners of company stock have against the assets that a company has. Stockholders' or shareholders' equity is also called net worth.
Income statements show the profitability of a business. The income statement is for a period of one year and shows the total sales revenue for the year. Subtracted from sales revenue is the cost of goods sold or the expenses a company incurs in producing finished goods to sell. Also deducted from the revenue are expenses for operating costs and depreciation. If a company is publicly owned, its income statement must also report earnings per share Tracy, Earnings per share is a measure of company profitability Godin, It is calculated by dividing net income by the total shares of stock.
When looking at the income statement of a company, the profitability isn't just the gross profit, it is also important to look at the ratio of expenses as a percentage of profit.
If a company has high profits but also has high expenses, the company could be mismanaged. Balance sheets are not only important to companies but also to investors Godin, p. Balance sheets can tell investors whether or not a company is a good investment based on its financial condition. Financial statements are often prepared by accountants and reviewed by auditors to ensure that the records are accurate and to avoid the temptation not to report factual information or to hide financial flaws.
A reason business owners may use financial professionals is to reduce the chance of error and to stay out of an area where they may not have expertise. O'Bannon cautioned business owners against being lulled to sleep by the power of current accounting software products, which cannot replace the knowledge gained by using professional financial advice. O'Bannon felt that one of the primary benefits of the newer software is that it allows owners and financial advisors to speak the same language and lets business owners provide easy to use documentation to their accountant.
Accountants and other financial advisors can use software to quickly perform somewhat complex analysis and generate reports for their clients. Arar wrote that small businesses operating in the s have "more accounting software options than ever, including Web-based subscriptions.
Analyzing balance sheets and income statements requires more than simply reading the categories of figures. The numbers have to be read with an eye towards what they mean and what they might mean in combination. Scott suggested asking the following questions to get close to figuring out how internal factors, especially management, influence financial statement content:.
On the other hand, examples are sometimes harmful when they are of poor quality and prepared by an amateur. So, reading a free ample of a term paper on financial statement analysis try to realize and value its quality. The most reasonable way to complete a good term paper is to read much about the topic. Use only reliable literary sources, like books, encyclopedias, articles of the famous scholars in newspapers, magazines and scientific journals.
A good term paper is not a simple description of the topic but its interpretation. That means, you may use the facts and cases from the real life and illustrate the impact of financial statement analysis on the success of the business. Having analyzed data and borrowed the experience of the free examples from the web, you will be able to complete a great term paper and improve your academic progress.
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Financial Statement Analysis Term Paper:
The analysis of financial statement is a study of establishing meaningful relationship between various financial facts and figure given in financial statement. The basic financial statement included balance sheet and income statement which is the indicating device of profitability and financial soundness of business concern.
Financial statements are records that can provide indications of the financial health of a company. Accurate financial records are necessary to keep track of financial warning signals such as.
Financial Statement Analysis Paper Example 1: Dell Computer Dell Inc. Current Year Prior Year 3 Years Ago $ Percent $ Percent $ Percent Income Statement . Sample essay on financial statements and their analysis.
A financial analysis paper details a company's financial health. While the company's history, financial statements and stock performance can all summarize different aspects of its financial performance, the financial analysis paper incorporates all of these details . Running head: FINANCIAL STATEMENT ANALYSIS PAPER Financial Statement Analysis Paper Principles of Accounting ACC/ Mr. John Opincar June 24, Abstract.