Financial Statements Differentiation Paper
There are four different types of financial statements discussed in week which are comprehensive income statements, balance sheets, reconciliation statement and cash flow statement. There is significant differences between the financial statements and will define them. Also will discuss what individual financial statements would interest investors, creditors, and management. Financial statements help us comprehend the past and forthcoming financial situation of a company.
According to Sherlock and Reuvid, a balance sheet indicates assets, liabilities and equity balances of a company at any given point in time. The balance sheet will show short and long term liquidity and commitments of the company, also the control of the corporation and capital organization. The income statement indicates the elements of earnings and loss of any specified time frame. Also it will usually display subtotals for gross ...view middle of the document...
Investors would be interested the income statement, since it shows the total amount of revenue a corporation has during a certain time frame. It also shows the earnings per share, which essential to investor in looking at present and future dividends. A knowledgeable investor will also be interested in a company’s balance sheet. It lets for ratio analysis that can service an analyst to gauge the entire financial status of a business.
Creditors are interested in cash flows statements, since it shows the actual cash has been produced that can be used to make required debt payments. Also creditors would be interested in balance sheet, since it permits them to gauge the financial status of the corporation and weigh the company’s capacity to pay its obligations currently and after acquiring new debt. Creditors will use a balance sheet along with the income statement to confirm that the corporation is in compliance with the debt agreement. A debt agreement gives the creditors a legal source to call any debt owed if the corporation goes into financial problems.
Management ideally should be interested in all four on all four financial statements. All four statements offer a different but equally significant understanding into the financial situation and whole shape of the company. Generally management is inclined to be concerned with income statement and cash flow statement. They allow for a straight measurement of operations results over a certain time frame which will allow it to be compared to other to prior periods. Income statements permit management to measure the performance and give them an idea if they are being productive or regressing from previous years.
All four financial statements give an insight on the overall financial health of a company. Each one gives a unique financial aspect of a company and interest financial personal. Financial statements can help in making decisions on which direction the company should move in and areas of opportunity. Investors and creditors pay especial emphases on certain statements to predict future financial gains and losses. Management should be able to understand all four statements in order to understand where the company is going.