February 21, 2015
Colorado Technical Institute
Date: February 21, 2015
To: Board of Directors
From: Sarah Bojorquez
RE: Financial Reports
Introduction As your new corporate business financial analyst I would like to take a few moments of your time to go over some of the reports you will be receiving from me in the near future. I will cover a lot in this memo, so please feel free to contact me if you need additional clarification or specific information. I will be issuing balance sheets, income statements, cash flow statements and statements of stockholder equity. I have included descriptions and explanations of each of these in this memo. Please look them over and advise me if you have any questions or concerns. Each of these reports, when taken on their own, give a snapshot of the company in one way or another. They can also be broken down by department or product and analyzed to see ROI, which products or departments are cash generators and which are less profitable, and which departments are using resources in an efficient manner. While these reports are made for our use, they are also used by others inside and outside of the company:
• “Managers employ ratios to help analyze, control, and thus improve their firms' operations.
• Credit analysts, including bank loan officers and bond rating analysts, analyze ratios to help ascertain a company's ability to pay its debts.
• Stock analysts are interested in a company's efficiency, risk, and growth prospects.” (MUSE, 2015)
The general reports will, of course, always be available for your perusal, but I will also issue many reports intended only for our internal use. One caveat: “An accountant is not allowed the luxury of waiting until things are known with certainty. In order to recognize revenues when they are earned, recognize expenses when they are incurred, or match expenses with revenues accountants must often use estimates” (Accounting, 2015, P. 2). Many of the items in the following reports will be based on facts, there will however be times when things are estimated. These items will be clearly marked
Balance sheet The balance sheet shows our company’s total worth. It lists assets, liabilities and shareholder’s equity. It is a great tool for evaluating the worth of a company at a glance, and can be further analyzed to view different departments, product lines etc. We issue a company wide balance sheet, as well as several reports based on department, product line and location. In theory it is a created using a very simple equation: (Investopedia, 2013)
Assets = Liabilities + Shareholders' Equity Assets are the things that a company has. There are two types, long term and short term. Long term are things the company will have for more than a year and includes land, capital etc. minus depreciation. Short term assets are things that belong to the company short term (under one year) such as inventory, accounts receivable etc. Liabilities are what the company owes (money it has borrowed). Shareholder’s equity is all of the things left over. “The managerial balance sheet, like the managerial income statement and managerial statement of cash flows, can be broken down and arranged differently to show various aspects of the business operations and activities. The focus can be particular assets like cash, inventory, and equipment for a single product line or a segment of the business” (MUSE, 2015)
Income Statements According to the Securities and Exchange Commission, a division of the United States Government, “An income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year)” (SEC, 2014). I will be preparing monthly income statements in addition to the annual income statement you are probably used to seeing. This report will contain overall revenues and expenses for each