Financial statement of a company - Essay Example

When this is done, the company has the knowledge of whether it has the liquidity to settle any debts that are due. The financial statements are also important in determining the costs of productions and the selling rates. When this is done, then the company is able to determine the profit margins that it makes. This helps develop the land increase and the bottom line. The analysis of financial statements is also important in keeping track of the inventory. This is very important in knowing if you have enough inventories that can be used to meet all the sales that are projected.

Knowing the total liabilities that are in relation to the total equity of the business is very important (Robinson, 2009). This is known as the debt to equity ratio and is very important to each and every business. With a well planned and organized financial statement, an analysis can be done to know the debt-to-equity ratio. This is one of the great benefits of financial statements. Last but not least, a well organized financial statement has the ability to help an organization keep track of its improvements over time.

When financial statements are compared overtime, it can be used to spot any changes that affect the organization both positively and negatively. A financial statement is one of the most important tools that organizations and small businesses use in order to realize significant changes that are in their organization. This, in turn, helps the business and management strive to identify the strengths, the weaknesses and the relationships that exist in the business and the internal and external factors of the environment (Brigham, 2010).

Question 2 Yes, managers should recommend business alternatives based on financial analyses. This is because most of the decisions that concern a business revolve about the finances of the business. So for a manager to come up with a recommendation on matters that affect the business, then they have to do a lot of analyses on the financial statements of the company since all the financial issues that a company has are recorded in its financial statement. It is, therefore, important that every decision that is to be made on the company has to be compared with the financial statements of the company.

If recommendations are done without consideration of the financial statements of the company then there is a higher chance that the decisions made might have a negative influence on the company (Taylor, 1967). For any manager to make important decisions of a business, one must know the present values of the business. The present value is the total value that a given date has on future payments. This is important in evaluation of the investments risks of an organization. For every manager, knowledge and good analyses of the financial statement are important in getting to know the present value.

These give the manager the value of each and every future investment. This can, in turn, help the manager make important decisions in a business. It is for this reason that financial statements are important in making key decisions for a company. If a manager has a good knowledge of the organization’s financial statements, then he is able to make important decisions today that will affect tomorrow. Without proper analysis, the manager might end up making decisions that will have an impact on the organization later in the life of the business.

Therefore, every manager has to consider the analyses of the financial statements of the company before making any important decisions in a business (O’Regan, 2006). Questions 3 The value on any given date of a payment of the future that has been discounted to have a reflection on the time value of money and any other factors investments risk included is known as present value.