Relationship between financial statements

Relationship between financial statements

Introduction

CryoLife was founded in 1984; it was the first biomedical company that expertise in low temperature preservation of heart valves of human that are used for the new born babies with heart defects.

Relationship between income statement, cash flow and balance sheet

Financial statements interconnected with each other, the statement of cash flow is directly related to all financial statements (Needles & Powers, 2010, pp. 19-20). Especially incomes statement and balance sheets are interconnected with the statement of cash flows.

If we observe the movement of cash, it shows the same picture. In the balance sheet of CryoLife cash and cash equivalents are USD 21705. The same is found in the ending cash balance in the statement of cash flows. It is further related with the income statement in which net income was USD 7371; it is present in the statement of cash flows in operating income. Receivables are of cash flow statement with balance sheet, which is around USD 2230.

It is also observed that the net cash flows from financing activities are equal to total liabilities increased from the previous year's balance sheet (Needles & Powers, 2010, pp. 19-20). The relationship between financial statements helps the analyst to understand clear picture of the financial position of the company and profitability in terms of performance of the assets.

There are key ratios to understand the clearer picture of any organization, such as:

Profit margin ratio

Asset turnover ratios

Debt to equity ratios

Quick ratios

All prior ratios are calculated with information gathered from the balance sheet and income statement to analyze the performance of the organization. By analyzing profit margin ratios of CryoLife, it is notable that the company has increased its performance and the profitability increased by staggering 2.8% which is approximately doubling the growth. Revenues were increased; it is the sign that the company has not expanded its business but increased profitability.

As CryoLife is a research and technology oriented company, its administrative cost is relatively high. Therefore, it can be said that the company is investing in their R&D so that they can better compete in future.

Irrespective of net profit margin, if we look at the gross profit margin or contribution margin we came to know that company contribution margin is 63.4%. Previously the contribution margin was 58% approximately, showing that the company is efficient in managing its variable cost.

Assets turnover ratio indicates how efficient assets in generating revenue (Kimmel et al., 2011). Asset turnover is calculated using net sales divided by average total assets. The data is from the balance sheet and income statement to get a clear picture. By analyzing data of CryoLife, it is that the company is efficient in using its assets. The ratio is 0.84 which shows that company assets are generating good revenues on per dollar spent on assets.

Debt to equity ratio defines the structure of the organization, whether the company is equity based or mostly debt financed. If the company is more equity finance than more return is ...