HCA 270 WEEK 4 Assignment Financial Statement Analysis
HCA 270 WEEK 4 Assignment Financial Statement Analysis
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Date Created: 11/12/15
Financial Statement 1 Financial Statement Analysis YOUR NAME Axia College of University of Phoenix Financial Statement 2 Financial statements are often t he life line of a company These statements show a company manager how viable the organization is and how profitable it has been If this financial statement is not interpreted right it could cause the reader to make some serious mistakes when making the firm s financial decisions Financial statements provide an overview of the businesses financial conditions There are four basic types of financial statements The first is the balance sheet which reports a company s assets liabilities and net equity for a certain period An income statement also known as profit and loss statement reports the company s income expenses and profits The retained earning statement explains the changes in a companies retained earnings over a period A cash ow statement shows the companies cash ow activities These figures come from the companies operating investing and financial activities To sum things up these statements shows a company where there money has gone and profitable they have been They shown an overall riskreturn profile and if the mix of debt and equity financing is profitable Lenders such as banks or bond buyers are interested in financial statements because through them they can determine if their interest and principles Financial Statement 3 can be paid on time Equity owners want the assurance that after paying their lenders their will be finds left over to reinvest in their company for growth or paying out of dividends Good management through financial statements can lead to a variety of ratio values There are limitations in what kind of information one can obtain from financial statements These statements will not tell the companies health and performance The statement only provides information about the companies past figures These statements will not tell how the company is going to do in the future The financial statements are not good for predicting the company s performance or continuing trends These statements will not show every exchange of goods and services every conversion of account receivable and payable are shown and depreciation of each capital equipment Knowing its net income for the past years does not provide information for net income for the years to come Outside factors play a part in these statements Economic conditions could change third party payer decisions Federal and State regulations and technological changes come could effect changes Financial statement analysis can only be as good as the financial statements for that purpose only Financial Statement 4 In commonsize statements the items in the statement is presented as a percentage of some base By expressing the items in proportion to some sizerelated measure standard financial statements can be created revealing trends and providing insight into how different companies compare NetMBA20002007 The balance sheet figures are shown as percentages of total assets The income statement items are shown as percentages of total revenue The cash ow items are shown as percentages of net changes in cash Companies that use commonsize statements refer to the numbers as a percentage that is usually 100 for their organization Common size statements are interesting but are seldom used as tools Ratios are highly important tools in financial analysis that help financial analysis implement plans that improve profitability liquidity financial structure reordering leverage and interest coverage Although ratios report mostly on past performances they can be predictive too and provided lead indications or potential problem areas McGrawHill 2000 Analysis finds a ration analysis as a more beneficial tool Ratio Analysis consists of computing one number divided by another from the financial statement and comparing those ratios to the average from some relevant comparison group Ratio normalizes financial statement data They Financial Statement 5 provide information about liquidity which means how quickly a company can raise cash Ratios provide information about performance and financial leverage Most companies use current ratio as there most commonly used figures This financial leverage provides capital structure which shows the extent a company can borrow The ratio analysis also shows a coverage ration which shows how the company meets its financial obligations The profitability ratio is the final step in the process This ratio shows a company s ability to generate a profit Profits above and beyond those needed to meet its obligations The most commonly used profitability ratio is return on assets A company uses a different ration when they are measuring profitability measures for return on equity Most financial analysts would prefer ratio analysis statements over commonsize statements Ratio statements normalize financial statement data and commonsize statements do not The ratio statements summarize a great deal of information with very few numbers When needing to make a judgment about the company s financial performance the common size statement will not provide all the information a lender needs to see Someone looking at the company s financial statement can look at a few of the company s ratios and be able to know a great deal Financial Statement 6 about the organization References Financial Accounting Standard Board December 1984 July 11 2009 httpWWWfasborgDdf Leopold Bernstein John Wild Analysis of Financial Statements McGraWHill2000 NetMBA Business Knowledge Center Finance July 112009 Copyright 20002007 httpWWWnetmbacom httpWWWDhiladethiaeduio httDWWWexcelbusinesstoolscom
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