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Q: Explain how the financial statements can be used to evaluate a firm's performance after cash-oriented business activities have been recorded.
A: How to Complete a Ratio Analysis on Financial Statements Any successful business owner is constantly evaluating the performance of his or her company. Ratios are vital tools to evaluate the financial condition of the company. [ By certain ratios, you can analyze profitability, liquidity and efficiency. Although ratio analysis is used to report on past performances, they can also provide
certain indications of potential problem areas. Ratio analysis can also evaluate how your company compares to other businesses. What Kind of Analysis Can I Do for My Financial Statements? Understanding financial statements and the type of information that can be gathered from them may significantly help you in the success of your business. A wealth of data are available on each of the statements, and combining that with the analytical tools available will help you understand the areas you should focus on to improve your results. Three financial statements and a ratio analysis are most important to understanding your business. What Information Can Be Derived From the Analysis of Financial Statements? A company's financial statements offer investors a look under the hood so they can evaluate whether or not the company is being managed properly, earning money and does not have too much debt to remain viable into the future. Financial statements tell you how the company earns and spends its cash, how many asset and liabilities it has and how much equity the shareholders own. Financial Statement Audit Plan Analysis Many business owners associate audits with suspicions of dishonesty. Auditors serve multiple purposes in the business world, however. By analyzing financial statements, auditors can predict how well a business is likely to do over the next couple of years and suggest changes to the financial plan if necessary, as well as catch and correct misstatements. What Are Stockholder Equities? The term "stockholder equities" is technically incorrect; a more accurate formulation is "stockholders' equity" or "shareholders' equity accounts." Equity represents the contribution an investor makes in a company's activities. ]
Expert answered|thederby|Points 1389|
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Asked 9/3/2012 6:36:29 PM
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