FIN4060 Week 1 Project

Financial Statements

Businesses can be divided into the following organizational categories:

Proprietorships

Partnerships

Corporations

Irrespective of the organizational categories, �nancial statement analysis proves to be an effective

tool that supports decision-making.

You might wonder how �nancial statement analysis is so useful for decision-making. The answer lies in

being able to discern and con�rm the truth about a company's �nances compared to what might be

represented in its �nancial reporting.

The ability to conduct a meaningful �nancial statement analysis has many personal implications as well. Some of these include the issues of career planning, employment, protecting �nancial interests,

investments, and retirement planning. You will observe that these issues relate to concerns that are

both internal as well as external to the involved company.

Financial statement analysis involves using information provided in the balance sheet, income

statement, and statement of cash �ows to judge the performance and risks at a speci�c time or over a

de�ned period. Such an analysis is highly effective in evaluating speci�c operations of the company

such as asset usage and ef�ciency, debt management, and pro�tability.

While conducting �nancial statement analysis, you'll realize that there is continuity in �nancial

information as it �ows from one statement to another.

What is continuity in the �ow of information? It means that a change in a company’s �nancial position

impacts all of its �nancial statements. Each �nancial statement – balance sheet, income statement, and

statement of cash �ows – is interrelated to the others. We need to look at all four statements to see

the complete picture of a company’s �nancial health.