Financial ratios help identify strengths and weaknesses of a company through the analysis of financial statements and financial calculations. For this discussion, imagine you are a financial analyst for a company and your company is evaluating the purchase of another company, Hillside, Inc. This week, you’ll review a balance sheet and income statement for Hillside, Inc. and then calculate common financial ratios to evaluate the company’s financial performance.
Watch the following 2 videos as you prepare to respond to the discussion prompts:
“Financial Statements"
“Financial Ratios"
Financial statements. What are they and why bother with them? Well financial statements are nothing more than reports created by Management in order to summarize key financial metrics, so you can monitor the financial performance of the company.
The purpose of financial statements is to tell the story to all the stakeholders about the profitability. That is the income statement the financial position of the company that is the balance sheet and cash movements or cash flow of the company. This had the three most critical important financial statements to know.
Understanding how to read financial statement is very important for managers in order to make decisions based on the current financial performance and future Financial projections given that current state.
What are some of the types of financial statements? As Illustrated earlier you have the balance sheet.
This particular financial statement will show you the assets the liabilities and the equity of the company.
In a snapshotted time. Basically you're looking at it as assets are equal to liabilities plus equity.
The income statement on the other hand concentrates not on assets or liabilities, but on the organization's revenues and expenses during a specific period of time.
revenues less expenses equal net income If they're going to decisions revenues exceed expenses, you have a positive income if the expenses are greater than their revenues, then you're going to have a loss.
And then third and finally they catch flow statement measures how well a company generates cash to pay. It's that obligations fun is operating expenses and font potentially investments in the future. We said the three key main financial statements.
There's another one known as the statement of changes in equity which basically records how profits are retained within a company from one year to the next but look at the future growth or the distribution to third parties.
In my experience as a healthcare professional administrator, I can share with you that financial statements are useful tool for managers and directors.
Why you will determine if they're going to session is making money profitability? Finally, you will find that this financial statements can serve as a report card to investors lenders and other stakeholders of the financial performance of the organization.
This is all for now.Transcript
Access Financial Ratio Calculations, which is part of the Wk 4 Summative Assessment: Financial Analysis Calculations. Use this balance sheet information in it to choose 1 financial ratio that you will need to calculate for Hillside, Inc. and answer the following:
- Which ratio did you choose? Explain what this ratio means.
- What were the results of your calculation? Show your work to the class, including the formula you used and the data you input for your calculation