Question

Answer in 2 paragraphs

How financial statements facilitate senior management when seeking to measure the company's fiscal situation. Explain how financial statements can be sources of external capital.

Answer 1

Financial statements are written record that reflects the business activities and financial performance of the company.

As owner Financial Statements used to provide senior managers with key business metrics.Financial Statements can be used by managers to take right decisions at the right time, track performance , bugdet and other metrics.It acts as tool to make decisions , motivate teams and maintain a long strategy for the company.

There are three main components of financial statements-Balance sheet, Income statement, Statement of cash flow,all combined to tell the management a significant amount of details about what are the company's core competencies are and the weaknesses and strengths.

The income statement is a statement states, from top to bottom, starting with revenues sometimes called top-line. Expenses and costs are subtracted followed by taxes. This gives the net income of the company.

Balance sheet shows the financial position of the company. It tells about the Assets, liabiilities and equity of the company. Both sides of balance sheet, (Assets)and ( Equity and liabilities) side must be equal.

Statement of cash flows shows the company's financial activity over a period of time. It shows the cash inflows and outflows on various activities of the company like operating, financing, etc.

External source of capital may includes shareholders ,debentureholders, bondholders, creditors, moneylenders etc. External investors read the financial statements to predict the future performance and company's worth. They judge the company by their financial statements. On that basis they decides whether to have a link between the company or not.