Best profit and loss statement for restaurant template excel sample, A Financial statement is a corporation’s resume reflecting the fiscal activity of the enterprise. There are four important components which are part of a statement. These components would be the balance sheet, income statement, statement of retained earnings, and also a statement of cash flow. A balance sheet reports a business’ net equity, assets and liability. An income statement states a firm’ expenses, gains and earnings on a particular time period. A report on retained earnings documents the changes in a business’ retained earnings within a period of time. The statement of cash flow says a business’ operating, investing, and financial cash flow. These components of a financial statement are utilized to gauge the financial ease and activity of a company. A positive or negative fiscal statement can ascertain if a company is in a strong or weak financial situation.
The purpose of a financial statement is to reflect the financial weakness or strength of a company. Internally, it’s used by a company to make fiscal decisions such as hiring new workers or layoffs. When businesses are financially unable they look to reduce cost and the fastest way to decrease costs would be to remove employees. Today in a struggling economy, employees are considered as costly obligations, and companies and governments are trying to reduce those liabilities as much as possible.
Recognizing financial statements assist owners and managers make better choices monitoring the business and plan for future growth. Financial statements provide a very clear grasp of the business’ strengths and weaknesses. They’re critical for business owners who want to succeed and expand their organization.
Though financial statement analysis is an extremely useful tool, it has two limitations. These two limitations demand the comparability of financial information between companies and the need to check past ratios. Comparison of one company with another can offer invaluable clues regarding the financial health of an organization. Unfortunately, gaps in accounting procedures between businesses sometime makes it difficult to compare the firms’ financial information. As an example if a single company values its stocks by the LIFO method and another company by average cost method, then direct comparisons of financial data like stock valuations are and cost of goods sold between both businesses may be misleading. Some times enough data are introduced in foot notes to the financial statements to restate data to a similar basis. Otherwise, the analyst must remember the absence of comparability of the data before drawing any certain conclusion. Nevertheless, in spite of this restriction in mind, comparisons of important ratios with different businesses and with business averages often suggest avenues for additional investigation.
A company’ financial statements are an immediate connection of how well a business is doing and if they’re in a position to hire new employees or layoffs. Another alternative for companies to lower costs is by sending as much work overseas where the salaries are far lower and where the regulatory is much simpler. Nowadays, most big corporations only need as many U.S. employees as absolutely required. In a world where labor was globalized, a few corporations shell out massive amounts of cash to American workers when they could save paying wages to workers abroad. In the old times, a person can go to school, get a good paying job with a single company for 30 years and retire with a wonderful pension. Unfortunately for today’s generation, corporations do not have the same loyalty, when a business reaches a financial hurdle; one of the simplest and quickest ways to reduce costs is to eliminate its own employees.
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