Good Example Of Essay On Analyzing Financial Statements

Analyzing Financial Statements

Financial Statements are the languages of business, and are of enormous help to anyone evaluating the business and tracking its progress. The financial statements of the company comprises of Income Statement, Balance Sheet and Cash Flow Statement. Below discussed is the information contained in each of the financial statement, and how they assist in decision making:
Income Statement- Also known as, ‘Profit and Loss Statement’, this financial statement provides information relating to the revenue figures, gross margins, operating expenses, and eventually the net margin earned by the company. Thus, by analyzing the income statement of a company, an individual can judge if the company is earning enough revenue to justify its operating expenses, and if net profit margins are sufficient to boost the confidence of the shareholders. All these financial items may also be compared with that of the competitor firm. For instance, by analyzing the income statement of Apple Inc., which shows high net profits of $39510 million and revenue figures of $182795 million, one can be sure of a strong financial standing.
Balance Sheet-This financial statement provides information about the financial position of the company. Balance sheet of the company contains financial items such as current assets, non-current assets, current liabilities, non-current liabilities and equity. Thus, by analyzing the balance sheet, an individual can evaluate the working capital position of a company, and the amount of debt and equity involved in the capital structure.
Cash Flow Statement- This financial statement is usually the most under-rated, but in terms of evaluating a company, it always spells out a true financial standing of the entity. Unlike, income statement and balance sheet that are made on accrual basis, cash flow statement is made purely on cash basis, and hence is most difficult to manipulate. For instance, if the income statement of a company shows a high net profit but cash flow statements shows a negative cash flow from operations, this directly indicates ill financial health of the company.

Works Cited

Way, Jay. What Is the Importance of a Company's Financial Statements? n.d. 2 April 2015 <http://smallbusiness.chron.com/importance-companys-financial-statements-21332.html>.