respond with a 100 words
Financial statement analysis is the process of analyzing a company’s financial statements for decision making purposes and to understand the overall health of an organization. Financial statements record financial data, which must be evaluated through financial statement analysis to become more useful to investors, shareholders, managers, and other interested parties. Paul Kimmel’s video identifies how the financial statement analysis gives an accurate account of what a company made during a certain period. Financial statement analysis also shows the different trends by comparing ratios across multiple periods and statements. The different statements measure liquidity, profitability, company-wide efficiency, and cash flow.
Kimmel also states in the video why accounting students and professionals should use the financial statement analysis. One example that Kimmel uses is an article in a Wall Street Journal that states U.S. Small Cap shares are pricey. The analysis is a way to determine what pricey really means. Another example that Kimmel uses is Amazons frequent headlines for obscure and unfair pricing. Kimmel goes on to discuss three other topics that is concerning financial statement analysis which are liquidity ratio, solvency ratio, and profitability ratio. Liquidity ratios are an important class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital.Liquidity ratios are an important class of financial metrics used to determine a debtor’s ability to pay off current debt obligations without raising external capital. Liquidity ratios measure a company’s ability to pay debt obligations and its margin of safety through the calculation of metrics including the current ratio, quick ratio, and operating cash flow ration. solvency ratio is a key metric used to measure an enterprise’s ability to meet its debt obligations and is used often by prospective business lenders. Solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-and long-term liabilities. The lower a company’s solvency ratio, the greater the probability that it will default on its debt obligations. Profitability ratios are a class of financial metrics that are used to assess a business’s ability to generate earnings relative to its revenue, operating costs, balance sheet assets, and shareholders’ equity over time, using data from a specific point in time.
Hayes, A. (May 13, 2019). Liquidity Ratio Definition. Retrieved from https://www.investopedia.com/terms/l/liquidityrati…
Kenton, W. (April 24, 2019). Profitability Ratios Definition. Retrieved from https://www.investopedia.com/terms/p/profitability…
Kenton, W. (July 01, 2019). Solvency Ratio Definition. Retrieved from https://www.investopedia.com/terms/s/solvencyratio…
respond with a 100 words
Managerial and financial accounting are used for different decision making within a company. The managerial accounting is for internal use to keep the business successful. For example, if I am making sneakers to sell then I will need to know how much does it cost to buy the materials, produce the product and how much to sell it for. Managerial accounting lets managers make proper business decisions, strategically plan and set obtainable goals for employees of the company. Financial accounting is not only used for internal decisions but for outside shareholders and investors as well. This is where financial statements come into play. Financial accounting looks at performance of a company and also it’s financial health. Financial accounting can be audited and is highly regulated unlike managerial accounting. Some other characteristics for these two accounting systems are financial reports are done typically quarterly or yearly. Managerial can pull reports when ever they need to analysis the data to make a decision. Financial accounting looks at the information for general purpose’s for example, are we making a profit or how do our expenses look compared to revenue. Managerial looks at something very specific so they can make internal decisions to either enhance what they are doing or go a totally different direction with a product. Think big picture when thinking financial accounting verses thinking product specific for managerial accounting.
For example, day to day staff would review reports in our accounting software for operational decisions like do we run this sports camp or do we run a basketball camp, My board of directors are not going to care about the fine details. The board wants a big picture view if we are financially strong or struggling as a whole. They would look at the income statement, balance sheet and cash flow to ensure the company is staying on track.
immel, P.D., Weygandt, J.J., & Kieso, D.E. (2016). Accounting Tools for Business Decision Making (6th ed.). Retrieved from The University of Phoenix eBook Collection database