Question

you have just your MBA4807, Accounting for managers course and are in the process of starting a company with three other friends on the agenda of the neeting is a discussion point which statements are included in the financial statements and what is reported by each of these statements

Answer 1

The information found on the financial statements of an organization is the foundation of corporate accounting. This data is reviewed by management, investors, and lenders for the purpose of assessing the company's financial position.

Data found in the balance sheet, the income statement, and the cash flow statement is used to calculate important financial ratios that provide insight on the company’s financial performance and potential issues that may need to be addressed. The balance sheet, income statement, and cash flow statement each offer unique details with information that is all interconnected. Together the three statements give a comprehensive portrayal of the company’s operating activities.

The Balance Sheet - Also referred to as the statement of financial position, a company's balance sheet provides information on what the company is worth from a book value perspective. The balance sheet is broken into three categories and provides summations of the company's assets, liabilities, and shareholders' equity on a specific date.There are a variety of ratios analysts use to gauge the efficiency of a company’s balance sheet. Some of the most common include asset turnover, the quick ratio, receivables turnover, days to sales, debt to assets, and debt to equity.

The Income Statement - A company's income statement provides details on the revenue a company earns and the expenses involved in its operating activities. Overall, it provides more granular detail on the holistic operating activities of a company. Broadly, the income statement shows the direct, indirect, and capital expenses a company incurs.On the income statement, analysts will typically be looking at a company’s operating efficiency. Therefore, key ratios used for analyzing the income statement include gross margin, operating margin, and net margin as well as tax ratio efficiency and interest coverage.

The Cash Flow Statement - The cash flow statement provides a view of a company’s overall liquidity by showing cash transaction activities. It reports all cash inflows and outflows over the course of an accounting period with a summation of the total cash available.Standard cash flow statements will be broken into three parts: operating, investing, and financing. This financial statement highlights the net increase and decrease in total cash in each of these three areas.

A Comprehensive View

All three accounting statements are important for understanding and analyzing a company’s performance from multiple angles. The income statement provides deep insight into the core operating activities that generate earnings for the firm. The balance sheet and cash flow statement, however, focus more on the capital management of the firm in terms of both assets and structure.

Overall, top performing companies will achieve high marks in operating efficiency, asset management, and capital structuring. Management is responsible for overseeing these three levers in a way that serves the best interest of the shareholders, and the interconnected reporting of these levers is what makes financial statement reporting so important.