Question

Write a 200 word essay for Financial Statements Analysis and Financial Models Use APA format. All references must be cited correctly. This should be reflective in nature.

Answer 1

In the financial statement analysis, we have three components which we analyse:

1. Income Statement
2. Balance Sheet
3. Cash flow statement

The income statement is also referred to as the profit and loss statement. It starts with the sales as the top line and ends with the net income or the net profit as the bottom line. We can analyse the income statement by looking at the operating margin, the net profit margin, the interest expense, the times interest earned, etc.

The balance sheet provides the assets on one side and the total liabilities and shareholder’s equity on the other side such that the equation: Total assets = Total liabilities + Total Shareholder’s equity is satisfied. The balance sheet is used to analyse the amount of debt or financial leverage the business has taken, the total fixed assets in terms of plant property and equipment that the business has. We can also analyse the working capital requirements by looking at the current assets and the current liabilities.

The cash flow statement is again divided into three sub-parts namely, the cash flow from operating activities, cash flow from investing activities and the cash flow from financing activities. The cash flow from operating activities gives a picture as to how the business generates cash flow its core operations. The investing activities shows as to how much cash is being used for the purchase of new assets and the financing activities shows the amount of dividends and the interest the business pays to its shareholders and bondholders.