Year end profit and loss statement template word sample, Financial statements are all formal records of their financial activities of a company, person, or other thing. It offers a synopsis of a business or person’s fiscal condition in both short and long duration. It is a tool used to convey financial information of an entity to those who wishes to earn decision and informed judgments concerning the entity’s financial position, results of operation and cash flows. There are four financial statements Balance Sheet, Income Statement, Statement of Cash Flows and Statement of changes in owner’s equity. These four financial statements have unique intent but they are interrelated.
The purpose of a financial statement will be to reflect the fiscal strength or weakness of a business. Internally, it’s used by a company to produce financial decisions like hiring new workers or even layoffs. When businesses are financially struggling they seem to cut cost and the fastest way to cut costs is to eliminate workers. Today in a struggling market, employees are regarded as expensive obligations, and companies and governments are attempting to reduce those liabilities as much as possible.
Recognizing financial statements help owners and managers make better decisions monitoring the company and plan for future expansion. Financial statements give a crystal clear understanding of the business’ strengths and weaknesses. They’re essential for business owners who wish to succeed and expand their small business.
A inexperienced analyst may presume that ratios are sufficient in themselves as a basis for conclusion about the future. Nothing could be further from the reality. Conclusions based on ratio analysis must be considered tentative. Ratios shouldn’t be viewed as an end, but rather they should be seen as a beginning point, as signs of things to pursue in greater detail. They raise may queries, but they seldom answer any question independently. Besides ratios, other sources of information must be examined to be able to make decisions concerning the future of a company. They analyst should look, for example, at industry trends, technological changes, changes in consumer tastes, changes in extensive economic factors, and changes inside the business itself. A recent shift in a key management position, for example, might offer a basis for optimism regarding the future, even though the previous performance of the firm might have been mediocre.
Few figures appearing on financial statements have far importance standing by themselves. It is the relationship of one figure to the amount and direction of change over the years which are important in financial statement analysis. How can the analyst key in on important relationship? How can the analyst dig out the vital trends and changes in a company? Three analytical techniques are commonly used; dollar and percentage changes on announcements, common-size statements, and financial markers formulations.
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