What are some practical uses of financial statement analysis? Name the three key financial statements and what can be learned from each one. Reply these threads.

1. Financial statement analysis are important because they are used to explain important information about the frame work and performance of a firm. Some uses of the financial statement analysis would be when the owners and managers use the financial statements to determine long-term decisions about their business. They will want to conclude whether to keep going with their business or not to keep going. Another use of the financial statement analysis would be if they would either like to make more of or buy specific materials. The last reason for uses of financial statement analysis would be the decision to either lease or rent specific machinery for the goods that are being made. The financial statement analysis is also used to be a good way to keep historical records. The three key financial statements are the income statements, balance sheets, and statement of cash flows. Income statements are very important because they represent how much money the business has made during a year. It also shows the amount of spending the business has made and shows the end of the period net outcomes. Balance sheets are important because it shows the condition the business is in, either if they are doing good or bad. The last key financial statement is statement of cash flows and it is important because it will provide information about whether the business is running out of money. Statement of cash flows provides information about how much money was used to purchase something.

2. The practical uses of financial statement analysis is that it helps the creditors, investors, and managers to evaluate the company's overall standing in the market. Financial statements analysis portrays a company's strengths and weaknesses. The creditors use financial statement analysis so that they can know the company's ability to pay off its liabilities. It helps them decide whether to give out loan or not, and if the loans should be short term or long term. For investors, it gives an in depth knowledge of the company's profit/loss ratios from one year to another and the company's ability to pay dividends. For instance, by analyzing a company's dividend payments for past three years, it helps to identify if the payments made have increased or decreased with each following year. By doing this, the investors can make decisions if they should invest in the company. For managers, the financial statement analysis helps them to evaluate the company's operating, investing, and financial activities., and if any changes are needed in its strategic plans. So, it basically helps evaluate the company's overall growth and its ability to service in the market.

The three key financial statements are Income statement, Balance sheet, and Statement of Cash flows. The Income statement shows the profit or loss of a business. It shows the total amount that was earned (revenues) and expenses incurred in a particular period. A Balance sheet shows the company's assets, liabilities and equity. The equation for the balance sheet is referred as: Assets = Liabilities + Stockholder's Equity. The assets are all the resources that the company has in order to operate, liabilities are the loans which the company received from creditors, and stockholder's equity is the contributions made by the owners plus retained earnings. The statement of cash flows shows the inflow and outflow of cash through its operating, investing, and financial activities. The statement of cash flow helps us identify changes in cash and cash equivalent due to changes in Balance sheet and Income statement.

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Monetary data of an organization is turned into the meaningful information by organizing and summarizing in the form of financial statements Following are the three key financial statements Balance sh... View the full answer