Financial Reporting Financial reporting is a very important and necessary factor for a business. Financial statements show the financial status of the company and are a way to monitor the “financial health” of a business, which could be the difference in success or failure. The three main statements include Income Statement, Balance sheet, and Cash Flow statement; all of which link to one another to give an overall view of the company. The bottom line of the income statement lists net income, which links to both the balance sheet and the cash flow statement. On the balance sheet, net income leads into stockholder’s equity by retained earnings, and on the cash flow statement, net income is used to calculate cash flows from operations. By looking over the income statement, it’s clear that Coca-Cola has almost a 5% drop in net income from the previous year; this is important to note because it measures the company’s profitability, and generating profit is the most important thing a company can do for its shareholders. The balance sheet is important to a company for many reasons, one of them being if the company runs out of cash, or has to renew a loan at a bank, because it summarizes the company’s assets, liabilities, and owner’s equity. This will give an overall financial picture of what the company owes and owns. Coca-Cola’s assets, liabilities and shareholders’ equity all increased from the previous year.
Cash flow is the ability to pay debt, dividends, buy back stock and allows the company to grow. Cash flow is the amount of cash that is available in excess for distribution to investors; investors are attracted to companies that have a lot of cash flow.
The cash flow statement is divided into 3 sections: operating activities, investing activities, and financing activities. Operating activities basically shows how much cash comes from the company’s goods and services. Generally a younger company might show a negative operating cash flow while the company starts to grow. Investing activities will reflect the amount of cash flow spent on capital expenditures, such as new equipment or other items necessary to keep the business running. Lastly, financing activities would include outside financing from sources such as selling stock or bonds, or borrowing from a bank.
The increase in both current ratio and quick ratio indicate liquidity of cash has improved and short-term assets are available to cover costs of short-term liabilities. Coca-Cola had an increased amount of