Financial statement analysis

Running Head: ANALYSIS OF FINANCIAL STATEMENTS

Analysis of Financial Statements

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Question 1

Both articles are breaking down the benefits that one can enjoy from financial statements. These are insights that one can learn from the financial statement. Hence, both articles focus on advocating use and analysis of financial statements to gain insight into more information that may not be available from observation of business performance. Such include ratios that can be relied upon to ascertain how a business is performing, retrievable https://www.forbes.com/sites/sageworks/2013/12/22/understanding-financialstatements/#2a75846622b0.

Question 2

Both articles have discussed balance sheets and income statements. However, they have used a different approach to shed light on these financial statements. One article discusses how these financial statements can be used for trend purposes while the other discusses these financial statements from a perspective of what decisions need to be made in regard to the financial position from the income statements. Therefore, this article sheds light on the rationale behind different reflections from these financial statements.

Question 3

From the articles, that cash flow statements can be derived from assessing how cash is transacted in day to day operations of a business. When the cash performance is contrasted with the inventory performance, a company can gain insight into day sales and payables outstanding. Comparing this with inventory turnover enables the derivation of cash flow statements.

Question 4

Negative cash flow from operations is where a business is spending more cash than is earning. Therefore, payment exceeds receipts on a business. This identifies a business as an entity that has a problem in its expenditure hence a need to reduce expenses or find a way to increase revenue.

Question 5

There is a difference between financial checkup and financial benchmarking. With financial checkup, this involves assessing your own financial statements that have been recorded from your operations. This is different from the financial benchmark. The financial benchmark involves comparing financial statements of your business to those of competitors in your industry if operation. Financial statements tell you whether you are above, below in, or in line with the industry's performance average.

Question 6

There are three metrics of financial statements that help to make better decisions and, consequently, more revenue for a business. One metric is to introduce fiancé into ratio operation hence an insight of other reasons why finances behave in a particular way. The second metric is a mix and matches metric, which enables a business to ascertain how elements of different financial statements relate to each other. The third metric is to forecast from past knowledge. Hence, a business can use its trend to predict their future operations, retrievable from https://www.forbes.com/sites/allbusiness/2017/03/30/why-reading-your-financialstatements-is-a-lot-like-eating-kale/#149b2312652a.

Question 7

Both articles have slightly discussed sales ratios. Sales rations measure efficiency in terms of how many units each employee sells per unit time of how many units are sold per unit surface areas, in this case, per outlet shop.

Question 8

The gross margin is important in a company because it allows a business to determine if sales are enough to cover all costs incurred to arrive at net sales. Operating margin ion the hand enables a business owner to ascertain if the business is making enough profit to cater for all operations costs incurred during a given financial period.

Question 9

When the author uses the phrase mix and match, he intends to mean that it takes a different component of financial of different financial statements and compares them as new ratios. From the phrase track the trend, the author means that to learn in the direction that your business is taking, you need to identify the trend that your business has recorded. From this trend, you can make a realistic forecast of business performance in the future. The author perceives reading financial statements like eating kales in the sense that it is not the best and most desirable thing to do but has the most benefits when done, especially in the long run.

REFERENCES:

https://www.forbes.com/sites/sageworks/2013/12/22/understanding-financialstatements/#2a75846622b0

https://www.forbes.com/sites/allbusiness/2017/03/30/why-reading-your-financialstatements-is-a-lot-like-eating-kale/#149b2312652a