MANAGING FINANCIAL RESOURCES

Managing Financial Resources

Managing Financial Resources

PART A

Introduction

Financial statements highlights the financial performance of the company, it can be defined as a record of financial activities and transactions during a period of time which can be monthly, quarterly, semi-annually or annually. However a firm may have to restate its financial statements of prior year due to occurrence of an error, or as a result of breakdown in internal control. Another possible reason that may lead companies to revise their financial statement would be to conform to new industry practices or to reflect changes in accounting principles or as a result of recommendations by top management (Bischoff, Finley & LeBlanc, 2008).

Income Statement

The Income Statement is the management tool used by the company to report operations for the accounting period. Thus, the income (loss) is obtained by subtracting the costs and / or loss of income and / or earnings.

The statement shows a summary of the results of operating a business concerning a trading period. Its main objective is to measure or obtain an estimate of the profit or periodic loss of business, to allow the analyst to determine how much the business has improved over a period of time, usually a year as a result of its operations.

Balance sheet

The balance sheet is a "snapshot" of the assets of the company that allows a business valuation , and specifically restated to know (for example an optical heritage to that of option fair value for the adoption of international standards) how it is and if it is solvent.

The balance sheet consists of three parts: - assets , liabilities and equity. In general, the balance sheet traditionally follow each other in order of liquidity, although there are exceptions. The main property of the report is that the total assets always equal the sum of liabilities and equity.

Cash flow

Statement of Cash Flows reports on the sources of funds and their use in a given time period. This report is directly or indirectly reflects the company's cash receipts classified by major sources and its cash payments to the classification of the main areas of use during the period. The report gives an overall picture of the production results, short-term liquidity, long-term credit rating and allows you to more easily conduct financial analysis of.

Users of Financial Statements

The investors of a business require information pertaining to the future cash flows of the business. Investors are mainly involved with the valuing of the business, as they need to know the fate of their equity investments. The profitability, risk and cash generating ability of the concerned business will provide the necessary information. The creditors are interested in the risks associated with the firm such as liquidity and solvency. These are expressed as ratios, debt-equity and working capital. The methods by which contracts are written provide the third type of information that is sought after in the financial statements as this directly affects investors and creditors. Future creditors and investors need to have an idea as to how the business writes ...