financial statemrnt paper II

Abstract

Business report information is all recorded in the form of financial statements issued on periodic basis. They help for the future references and the continuous assessment of the company’s income, profits and losses. The income statement shows revenues minus expenses for a given time period ending at a specific date. The statement of cash flows summarizes sources and uses of cash in the company. It also indicates whether enough cash is available to carry on routine operations. The balance sheet on the other hand is a statement of financial position at a given point of time. (Fridson, 2011) This paper discusses the financial status of The Home Depot Company basing on its financial statements aforementioned.

The Income Statement

The income statement which people call the profit and loss statement reveals the revenue, amount of money used, profits and losses within the company over a period of time. Revenues are then calculated into the net income which gives the revenue recognized over a given duration, their costs and expenses charged against the revenues which include depreciation and amortization of various assets and taxes. (Kline, 2011)

The cost of sales within the company increased throughout the three years. The operating expenses decreased from the first year towards the last. The net earnings improved throughout the three years. Generally the company’s income had a rise which shows that the business was yielding and developing well since the revenues increased while the expenses decreased hence increased profits.

The income statement represents a period of time like the cash-flow statement. Its main purpose is to show the managers and the investors if the company made or lost money during that particular period. It shows the profitability of the company during the time interval specified in its heading, revenues, expenses, gains, and losses. It helps adjust the company’s strategic paths based on the economy. (Peterson, 2012)

Its employment enables great effective decision making process for a business organization. It gives effective tools to management for making effective decision-making as to how revenues may be generated more and expenses may be reduced or controlled. Effective decision entails drawing financial information which will provide useful information to the managers. It will enable the manager to know the overall performance of the year which will thereafter initiate him or her to take necessary steps towards increasing revenues in terms of sales and services. (Sinha, 2009)

The Balance Sheet Statement

The balance sheet displays the dollar amount of the company’s wealth, money owed, outstanding debts and stockholder’s equity as of previous date. The assets include Cash Equivalents, Short-Term Investments, Receivables1, Merchandise Inventories Property and Equipment, Buildings, Furniture and Fixtures. There are a number of notable Leasehold Improvements endeavors. Some construction exercises are in Progress, so do Capital Leases. It also includes intangible assets. Due to depreciation, the cost principle and conservatism, assets are reported at their cost or a lower amount. One of the most paramount importances of a balance sheet is that it allows you to easily determine the amount of the company’s working capital and whether the company is highly leveraged. (Kline,

2007)

Each balance sheet has footnotes which provide additional information about the company’s financial position, which includes the potential liabilities which haven’t yet appeared as amounts on the balance sheet. It is also a basic element in providing financial reporting to potential lenders which include banking organizations, people who are interested with investing and vendors who are considering how much credit to grant to some particular companies. Moreover, a balance sheet will help business men and the investors make wise decisions for their company since it shows the business overall financial health by listing all of its assets and liabilities, as well as its cash flow and income. (Fridson, 2011)

It will enable the investors to choose whether to invest in the business or extend credit to it while the business men can determine whether their business are earning money and if not they decide an alternative way forward to the success of their business. It is no doubt that it shows the net value of the business, the percentage and ratios which help analyze the business. (Sinha, 2009)

The Statement of Cash Flows

The statement of cash flows reports the income generated and used during the interval specified in its heading. The company chooses the period of time covered by the statement.

It is used to organize reports used in the operating activities, investing activities, financing activities and the supplemental information among others.

It is used to show the nature of cash receipts and disbursements, by a variety of categories. Like operating activities, investing activities, financial, supplemental information. It is also used to identify the cash that is flowing in and out of the company. If the company is consistently making more money than it is spending, then it will be in a position to raise its dividends to greater heights, buy back some of its stock, reduce borrowing, or acquire another company. In other words, it will be making a good profit and will be in a perfect financial position. (Peterson, 2012)

The financial statements provide information about the result of operations, financial situation and cash flows of an organization. The information is used to make pertinent decisions regarding the allocation of resources and money.

In the world of business, each statement has its own purpose, the income statement informs the reader about the ability of a business to make an attractive profit. In addition to this, it reveals the amount of goods sold, and the nature of various types of expenses, off course depending upon how expense information is divided. (Fridson, 2011)

The income statements can also be used to analyze trends in the results of company operations. The balance sheet informs the reader about the current status of business as listed on the balance sheet. This information is used in estimating the degree of liquidity, amount funding required, and debt niche of a given entity. More often than not, the cash flows may be used to find out the nature of cash receipts. (Kline, 2007)

REFERENCES

Fridson, M. S., Alvarez, F., & FinancePro. (2011). Financial statement analysis: A practitioner's guide, fourth edition. Hoboken, N.J: John Wiley & Sons.

Kline, B. (2007). How to read and understand financial statements when you don't know what you are looking at. Ocala, Fla: Atlantic Pub.

Peterson, D. P., & Fabozzi, F. J. (2012). Analysis of financial statements.

Sinha, G., & Sinha, G. (2009). Financial statment analysis. New Delhi: PHI Learning Pvt Ltd.