The four basic financial statements are very beneficial when it comes to doing research on any company. Whether the research is for purchasing stocks or just wondering how well a company has been performing. Knowing how to read and maneuver around the financial statements is a useful tool for internal users, such as managers or external users such as investors or creditors. These four financial statements include the balance sheet, income statement, statement of owner’s equity, and statement of cash flows.
The balance sheet is based on the fundamental accounting model of assets = liabilities + equity. This report will show the financial position of the company at any ...view middle of the document...
The equation for the income statement is net income = revenue – expenses. This statement can also be referred to as the profit and loss statement. Revenue refers to inflows from delivery, manufacture of a product, or the rendering of a service (QuickMBA.com, 2010).
The top part of the income statement shows the revenue brought in and the cost of sales. This number tells the researcher the amount of money the company spent to produce the goods or services it sold during the accounting period.
The bottom section deals with operating expenses. This section represents the expenses that go toward supporting a company’s operations for a given period. This could represent salaries of administrative employees and the costs for researching new products.
This report is good for internal users to review each month to see how their department or line of business is doing for the company. This report is also good for showing trends, such as month to month or calendar year over calendar year.
Statement of Cash Flows
This report states the company’s inflows and outflows of cash. While an income statement can tell you whether a company made a profit, a cash flow statement can tell you whether the company generated cash. The bottom line of this report shows the net increase or decrease in cash for any period of in time. The report is divided into three different types of activities which include: operating activities, investing activities, and financing activities.
The Chief Executive Officer, lender, and stockholders will be able to review this statement as it contains all of the transactions of the business reporting where the firm obtained its cash and what it did with it.
Statement of Owner’s Equity
The statement of owner’s equity shows the change in the owner’s equity during a given period of time (Learning Fink Finders, Inc., 2012). This report will list the...