how do you do number 2 FINANCIAL STATEMENT ANLAYSIS EXAM II 1. (20) One page sin
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how do you do number 2
FINANCIAL STATEMENT ANLAYSIS EXAM II 1. (20) One page single spaced required- Describe and explain the purpose of a Balanoe Sheet and 2. (20) One page single spaced required-Describe and explain the purpose of an Income 3. (20) One page single spaced required- Describe and explain the purpose of a Statement of Cash 4. (40) One page single spaced required on each of the following Explain the purpose and how a manager uses it in a business, provide examples. Statement and how a manager uses it in a business, provide examples Flows and how a manager uses it in a business, provide examples provide examples of the following: Liquidity Ratios Activity Ratios Leverage Ratios Profitability Ratios Please write complete sentences and organized paragraphs and provide in-text citations and references If you have any questions, please let me know.Explanation / Answer
What is an 'Income Statement?'
An income statement is a financial statement that reports a company's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.
BREAKING DOWN 'Income Statement'
Also known as the profit and loss statement or statement of revenue and expense, the income statement is one of three major financial statements in the annual report and 10-K. All public companies must submit these legal documents to the Securities and Exchange Commission (SEC) and investor public. The other two financial statements are the balance sheet and the statement of cash flows. All three provide investors with information about the state of the company's financial affairs, but the income statement is the only one that provides an overview of company sales and net income.
Income Statement
Unlike the balance sheet, which covers one moment in time, the income statement provides performance information about a time period. It begins with sales and works down to net income and earnings per share (EPS).
The income statement is divided into two parts: operating and non-operating. The operating portion of the income statement discloses information about revenues and expenses that are a direct result of regular business operations. For example, if a business creates sports equipment, it should make money through the sale and/or production of sports equipment. The non-operating section discloses revenue and expense information about activities that are not directly tied to a company's regular operations. Continuing with the same example, if the sports company sells real estate and investment securities, the gain from the sale is listed in the non-operating items section.
Purpose of Income Statement:
The purpose of the income statement is to show the reader how much profit or loss an organization generated during a reporting period. This information is more valuable when income statements from several consecutive periods are grouped together, so that trends in the different revenue and expense line items can be viewed.
The income statement contains several subtotals that can assist in determining how a profit or loss was generated. The gross profit is derived by netting revenues and the cost of goods sold together, and provides an indicator of the ability of a business to set price points that customers will accept, and to maintain the cost of the goods and services that it provides. The other key subtotal is the operating profit, which is the gross profit minus all operating expenses (such as selling and administrative expenses). This subtotal reveals the ability of a firm to generate a profit before the effects of financing activities are factored into the final profit figure.
The purpose of the income statement may differ somewhat, depending on the user. An investor wants to see a consistent profit that proves the viability of the business. A lender is most interested in a business generating a sufficient profit to pay for interest expenses and a return of the loaned amount.
Unfortunately, the profitability of a business can be skewed by fraudulent transactions that can alter the reported amount of revenue or expenses, resulting in a profit or loss figure that does not represent the actual earnings capabilities of the business. For example, someone interested in falsely claiming a high profit figure could capitalize certain assets so that they are not charged to expense until a later period. Or, the individual could recognize a customer advance as revenue, even though the related product has not yet been produced or shipped. Thus, fraudulent intent can interfere with the purpose of the income statement.
Manager’s use of Income statement:
The preparation of income statements on a consistent basis allows a business leader to have three key tools. One tool is the ability to understand how the business has performed during the last period. The second tool is the ability to compare the performance of the business over time. The final tool is to utilize an existing income statement as a planning tool to see how a major business decision would impact earnings.
Generally manager’s use the income statement for data to calculate financial ratios such as return on equity (ROE), return on assets (ROA), gross profit, operating profit, earnings before interest and taxes (EBIT), and earnings before interest taxes and amortization (EBITDA). The income statement is often presented in a common-sized format, which provides each line item on the income statement as a percent of sales. In this way, Managers can easily see which expenses make up the largest portion of sales. Manager’s also use the income statement to compare year-over-year (YOY) and quarter-over-quarter (QOQ) performance. The income statement typically provides two to three years of historical data for comparison.
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