FINANCIAL ANALYSIS

Financial Analysis

Financial Analysis

Answer 1:

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 (Sanborn, 2007, Pp. 48).

In regard to the way of presenting the income statement there are basically two ways. The first and simplest form consists of a single subtraction which is grouped on one side all the income and / or earnings and all other expenses and / or losses. The total income and / or gains are subtracted from the total expenses and / or loss and net income is obtained.

The second form is the most useful, and generally is more usual, is presented in a format in which items are grouped according to the functions to which they belong. In this format, several figures are useful as they are different groups of subtracting expenses and / or losses.

It also seeks to make a separation between what are the results from operations and those resulting from other operations that are not turning the company (dividends for example) (Yehuda, 2009, Pp. 479).

Income Statement Analysis

Despite City Florist's strong financial performance, Johnson was concerned about finding adequate security for the new £120,000 long-term loan. Therefore in order to review the financial position of the company, the income statement must be studied thoroughly.

The income statement of the City Florist shows that the sales and gross profit has increased over the two years but the net profit has decreased during the two years. This is due to the fact that the operating expenses of the City Florist has also increased. The manager must look into the facts that caused the expenses to increase. If City Florist controls its expenses, then it may be able to earn a huge net profit.



Answer 2:

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 (Beaver and Demski, 2008, Pp. 82).

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. The balance sheet is simply two different views of the same business. Assets show what means business uses, and the liabilities and net worth show who provided the ...