Financial statements
Financial statements come in a lot of variety and they provide the user a snapshot of the company’s financial standing at one point in time. Balance sheets give you the asset and liabilities of a company at any given time. The Cash flow statement provides in detail the cash flow operation of the company as to how exactly did the cash were allocated whether it be for investing, for financing or for the daily operation of the company. The Income statement on the other hand provides a total picture of the expenses incurred and the resulting incomes from it.Equally as varied as the type of financial statements is the number of reasons that it is used for.
For people within its organization, financial statements are used for critical decision process. Without it, a manager will be groping in the dark as to how his business is actually performing.
Financial statements provide them with information if they had achieved their sales target or not. Information considering whether their performance is at par with their competitors is also provided in the financial statement. Financial statements make it possible to see if the business has not suffered from a recent price increase and if they can afford to increase their price without suffering the loss of their market share.
For individuals outside the organization, there are also myriad ways for the financial statement to be used. If the business wants to ask for money from lending institutions, then the financial statement will be the first thing that these firms will require they should see. Their decision whether they would approve the loan application of a business firm is dependent on the analysis they get from the financial statement. This is because you can determine the strength of a business from the financial statement that it generates. Every strength and weaknesses that it has is recorded in these pages. Financial statements also provide a record of the history of the company involved. This gives you detailed information of the capability of the management team that runs the company asking for a loan.
Aside from using the financial statement for assessing loan risk, it can also be used by investors to determine the profitability of the company. Whether or not the company is attractive to be an investment target or not, the financial statement plays a critical part in giving the information necessary for the decision. The financial statement allows the potential investor a gauge on how the company is more competitive than others. The financial information that can be gleaned from financial statements allows anyone to see what has gone on in the history of the company that led to where it is now. It is a tool that can be used to predict and to spot potential problems ahead and also as a reference point wherein you can study previous problems encountered in the company’s past. You get to see the skills of the management by the way that their operation was handled. All of this kind of information is recorded at the financial statement. In short, a financial statement acts like an x-ray machine for anyone wanting to know the history and the characteristics of any commercial firm.