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Balance Sheet is referred to the Statement of Financial Position. It gives an indication of the company’s financial position in terms of assets, liabilities and capital (ownership equity) at any given instance of time.
Assets refer to the materials that a firm owns and, therefore, posses an attached financial value. This implies that they can either be sold or utilized in the creation of goods and services. The examples of Sparklin Automotive Company’s (SAC) assets include: the plant, automotives, equipment and the spark plug. Moreover, the cash that the company owns and the various investments are considered as the assets as well.
Liabilities refer to the amount of money that Sparklin Automotive Company owes to the others. The “others” generally refer to creditors such as banks, rent payable for building, the payroll the company owes its employees and the materials taken from the supplies on credit.
Shareholders’ equity is the final content of the balance sheet. It is also called as capital or net worth, in other words, it is the amount of the left money in case the company chooses to sell all its assets and to pay the liabilities. The leftover is what belongs to the owners or rather shareholders of the company (Hey-Cunningham, 2007).
Profit and Loss Statement:
Profit and Loss Statement are also compared to the Statement of Comprehensive Income or Income Statement. It gives a report that indicates the income, expenses and profits of a company over a given period of time. In essence, it offers information concerning the firm’s operation in terms of sales and the different kinds of expenses incurred.
This statement contains all the revenues that Sparklin Automotive Company gets from the sale of spark plugs and from the other investments on the left column. The other side of the statement contains the running cost of the company’s operations including the operating expenses, interest expense; cost of the goods sold and tax expense. The bottom line of the statement has a net income (profit) that is calculated by adding all the costs and subtracting the result from the total revenue.
Statement of Changes in Equity:
This is a financial statement that gives an indication of the dynamics that the company equity experiences over a given duration of time. The role of this statement is to provide the management of SAC with the necessary information regarding the manner the fund and capital of the entity is used or utilized. Basing on the fact that it indicates the movements of equity as well as the accumulated earnings and losses, the management is able to depict the whereabouts of the company’s capital i.e. where it came from and where it goes (Gibson, 2010).
Cash Flow Statements:
It is a statement that gives an indication of cash inflows and cash outflows activities in the firm, especially on its investing, operating and financing activities.
This financial statement is necessary to the management of Sparklin Automotive Company (SAC) as it serves first of all to offer some information about the liquidity and solvency of thecompany as well as gives the ability to change its cash flows in future. Secondly, it offers additional data for analyzing changes in assets, liabilities and capital. Finally, it improves comparison of the various firms by eliminating the effects that could be caused by variations of accounting techniques (Gibson, 2010).
How Will the Information That You Provide be Used by the Management Team?
The information contained in the financial statements will help the management to determine the SAC’s financial position. As such, the management will be able to know how the business is performing in terms of the economic value and profitability.
How Will It Help Them to Manage the Enterprise?
The information contained in the financial statement will be important in ensuring the transparency and accountability in the company’s financial matters. The management will be in a position to monitor all the activities including the cash issue and at the same time to question the financial management team in case the accounts fail to balance up. Furthermore, this will help the management to plan for future investments and to cut down the business operations’s areas that are not performing appropriately (McMullen & Kennedy, 1979).
What Are the Limitations of the Information That You Provide to the Management Team?
The main limitation is that the information contained may not be used effectively for the comparison purposes. This is because the competitors may choose to use different financial statements and also the contents may greatly vary.
How Can the Management Team Ensure That They Obtain a Complete Picture of the Enterprise?
In order to obtain a complete picture of the enterprise, the management should utilize the various forms of financial statements available. These should predominantly include the four mentioned above basic statements and many others as well. It will ensure that management is in a position to track the various movements of finance (Gibson, 2010).
The financial statements are indispensable part of any effective business management. They are important as they show a financial position of SAC at any instant of time. These statements are varied and can be utilized for both internal and external applications. For instance, the management can use them to determine their competitive edge by comparing their statements with those of the competing firms.