December 17, 2012
Financial Statement Differentiation
Financial information is important for investors, creditors, and manger of an organization. This data provides useful information to make informed decisions. Each of these different groups has different needs and requires different data. The most common financial tools are: income statement, retained earnings statement, balance sheet, and statement of cash flows.
Income statement is a report that shows success or failure over a specific time (Kimmel, Weygandt, & Kieso, 2009) . This revenue and expenses, and determine the net income of the business (Kimmel, Weygandt, & Kieso, 2009). This is important for investors, and management. The knowledge of success or failure through net income or loss allow for analysis of the business. The investor will can decide if the business is able to turn a profit and make value of the investment. For management it illustrates whether their decisions were effective to lead to a profitable business.
Retained Earnings Statement
Retained earnings statement shows changes in retained earnings. This determines what to pay to investors, and what to use to expand the company. The statement adds net income and subtracts dividends to determine the retained earnings (Kimmel, Weygandt, & Kieso, 2009). This tool is useful for investor and management. Investor would know what dividends are being paid to current investors, and determine future investment based on the data. For management this allows the company to see what retained earning can be used for future operations.
A balance sheet uses the formula of Assets=Liabilities + Stockholders’ Equity. The name balance sheet comes from the balance of asset and claim to assets (Kimmel, Weygandt, & Kieso, 2009). This is a comparative analysis that determines how company relies on creditors for financing. This is important for creditors, investors, and management. A creditor can determine to issue more credit or less depending on the debt to liquidity ratios and other ratio determine through the balance sheet. Investors and creditor can see if the company is dependent on investors or creditor heavily or if the rely little on outside investment (Kimmel,