Question

What information does the Income Statement provide and how does it benefit?
What information does the “Balance Sheet” provide and why is it useful?
What information does the “Statement of Cash Flows” provide and why is it important?
What information does the “Statement of Retained Earnings” provide?
What financial statement, as studied, provides better information to investors? Explain.
What financial statement, as studied, provides better information to creditors? Explain.
Explain what each of the following classifications of financial reasons consist of:
Liquidity ratios
Asset Management Ratios
Debt management ratios
Profitability Ratios

Answer 1

The income statement provides the result from the business operations. It summarizes the revenue and expenses over the entire accounting period. It provides information regarding the revenue, expenses, gains , losses and net income. It is useful to the users of the financial information as they use this information to help understand weather a company is making a profit or not.

The balance sheet provides information about the assets and liability and equity position of the company. This information is useful as it helps the users understand the capital structure of the company.

The cash flow statement provides information about the cash receipts, cash payments and the net change in the cash flow position of the company.It is important as it helps the users understand the cash flow position of the company.The business needs cash at all times, to pay the creditors.,pay bank loans and to purchase new assets.

The statement of retained earnings provide information about how much is left over after paying for the dividends o the investors and is retained in the business which can be useful to fund growth opportunities in the future, carry out research and development and also to pay off debts. It is important as is shows the changes in the retained earnings fro one accounting period to the next.

For the investors, the most important financial statement is the cash flow statement. This is because, the cash flow statement cannot be easily manipulated. It depicts the true position of the company. It includes the information about the cash position of the company, weather a company has excess or lack of cash. It also provides information about the business investments and the interest paid by the company.

From the point of view of a creditor, the most important financial statement is balance sheet. The balance sheet is a critical tool of them to evaluate the company and the risks attached to them as well as the financial risks that exists in the company.