Financial statements contain data that forms the foundation of corporate accounting. The data informs the management and relevant stakeholders on the financial health of the corporation (Scott, 2015). Three key financial statements are used in the business organization. These three are the balance sheet, the cash flow record, and the income statements. A balance sheet contains a synopsis of the firm’s fiscal balances (Scott, 2015). These range from the equity of the firm at any given time to its liabilities and assets. The cash flow statement provides a view of the company’s liquidity. It is the record of the amount of money that flows out and enters a company at any given time (Scott, 2015). It helps to show how the money is acquired and utilized in the firm. The income statement is a record of losses and profits of the firm. The statement shows the sales and expenses of the firm at a particular period.
Three key financial ratios used to analyze a company
Financial ratios are a measure of fiscal business performance, which helps business owners and interested parties know the financial health of the firm. Ratios can determine the profitability, solvency, and liquidity of a firm (Alexakis et al., 2019). Turnover ratios are used in a business organization to measure the efficiency of the firm using its assets from the data on the balance sheet and the income statement (Alexakis et al., 2019). Financial leverage ratios can be described as debt ratios where they concentrate on the firm’s ability to repay its long-term debt obligations. Financial leverage ratios show what the firm uses in financing its activities. Profitability ratios are used to determine if the business is gaining profits from its activities (Alexakis et al., 2019). The contribution margin ratio and net profit ratio are used to calculate the profitability ratio of a firm .
Delegate your assignment to our experts and they will do the rest.
References
Alexakis, C., Izzeldin, M., Johnes, J., & Pappas, V. (2019). Performance and productivity in Islamic and conventional banks: Evidence from the global financial crisis. Economic Modelling, 79, 1-14.
Scott, W. R. (2015). Financial Accounting Theory Seventh Edition. United States: Canada Cataloguing.
