Question

How do you identify the Income Statements for a company? Are both of these statements called “Income Statements” If not, what are the called? What information is contained on the statements that helped you to determine that they are the Income Statements? (Minimum Four complete seneteces)

How did your identify the Balance Sheets for each of the companies? Are both is these Statements called “Balance Sheets”? If not, what are they called? What information is contained on the statements that helped you to determine that they are the Balance Sheets? (Minimum Four Sentences)

Which company is a larger company. Apple or Microsoft? How did you come to this conclusion? Your answer should be a minimum of five sentences

Answer 1

Income Statement :-

An income statement is one of the three important financial statements used for reporting a company's financial performance over a specific accounting period, with the other two key statements being the balance sheet and the statement of cash flows. Also known as the profit and loss statement or the statement of revenue and expense, the income statement primarily focuses on company’s revenues and expenses during a particular period.
The income statement focuses on the four key items - revenue, expenses, gains and losses. It does not cover receipts (money received by the business) or the cash payments/disbursements (money paid by the business). It starts with the details of sales, and then works down to compute the net income and eventually the earnings per share (EPS). Essentially, it gives an account of how the net revenue realized by the company gets transformed into net earnings (profit or loss).

Mathematically, the Net Income is calculated based on the following:

Net Income = (Revenue + Gains) – (Expenses + Losses).

Balance Sheet :-

A company's balance sheet, also known as a "statement of financial position," reveals the firm's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements.

The balance sheet is divided into two parts that, based on the following equation, must equal each other or balance each other out. The main formula behind balance sheets is:

Assets = Liabilities + Shareholders' Equity

This means that assets, or the means used to operate the company, are balanced by a company's financial obligations, along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings and it represents a source of funding for the business.

It is important to note that a balance sheet is a snapshot of the company's financial position at a single point in time.

Evaluation of strenghth of a Company :-

The strength of a company's balance sheet can be evaluated by three broad categories of investment-quality measurements.

1.Working capital adequacy

2.Asset performance and

3.Capitalization structure.

The cash conversion cycle is a key indicator of the adequacy of a company's working capital position.

The fixed asset turnover ratio is calculated as:

Return on assets (ROA) is considered to be a profitability ratio – it shows how much a company is earning on its total assets. Nevertheless, it is worthwhile to view the ROA ratio as an indicator of asset performance. The ROA ratio (percentage) is calculated as: