Financial Statement Analysis - Assignment Example

Financial ment Analysis Discuss why it is just as important to analyze financial ments as it is to prepare them. Financial ments provide information on the financial position of a company. By analyzing them management can avoid taking decisions that would have an adverse impact on the going concern of the company or falling into cash flow traps. For example the Balance sheet provides information on a company’s assets, liabilities and owner’s equity whereas the statement of income provides information on a company’s revenue and expenses.

By analyzing them management shall be aware of their company’s strengths, weakness and the limits of its resources thus preventing them from overextending the company’s resources. Apart from the management potential investors or creditors also benefit from analyzing financial statements as this provides them with the necessary information as to whether a company will be able to pay back the money they have invested or loaned with an appropriate return on their investment.Discuss how business owners and leaders can use financial statement ratios to make decisions.

There are various types of ratios such as Liquidity, Asset turn over, Leverage, Operating performance / Profitability and Business Ratios. Using these ratios business owners and leaders can benefit greatly as they provide insight as to whether a company has sufficient resources to meet its short term financial liabilities, is the company using its resources in an efficient manner, how much debt it has incurred to date as compared to its net worth, is the company utilizing its resources in an efficient manner so as to generate profits and increase shareholder value and what is the status of its stock price.

In short these ratios can assist business owners and leaders in making more accurate and financially beneficial decisions especially when there is a lot at stake. BibliographyRuth, George E, and Thomas P. Carlin. Analyzing Financial Statements. Washington, D.C: American Bankers Association, 1998. Print.