Financial Statement of a Company
The financial statements are the basis on which the whole of the organisation relies. The financial statements show the net profit and the progress of the company to a great extent. Whenever any investor plans to deal in a certain company, the first thing he observes is the financial statements as the statements are the foundations on which the business depends.
The returns that the investors will get if they invest in the company are all shown in the financial statements. There are certain tips which investors have to follow to protect themselves from losses. Some of the important points are listed as under
1. The Cash Flows that are being operated in the business
Cash flows are termed as the inflows and outflows of cash during a given period of time. Knowledge about the cash flows is very essential as they can give an accurate estimate of the amount of cash that is being generated in the company. The reason for the preparation of the cash flow is that it shows the exchange of cash between different companies and in this way, the investors can come to know if the company has enough cash to make payment for all its expenses.
2. The financial conditions of the company
One thing that really troubles the investors is the financial conditions of the business. The investors are give knowledge about the safety of investing in their company and also give an estimate of the profits that the investors are going to incur. This is the very reason why the financial conditions play a very important role in the profitability condition of the business.
3. Results from operating activities
The balance sheet gives the balances of the assets and liabilities and when the financial statements is prepared, expenses and gains of the business are also taken into consideration. The operating conditions are sometimes of a concern to investors. Investors can easily find out the sales and the company’ earlier performance is of great importance for investors which can be found out using the results of the operating activities.
4. Equity of the shareholders
Equity earnings are important for investors to know and it also includes retained earnings along with it. Investors can know if the company has a stable growth if they have increased retained earnings. The financial statements should contain this point in it as it is helpful to investors in all ways.
5. Revealing contingency if any
A contingent liability is one which can incur loss to the business in the near future. The occurrence of the event is not sure. In that case, the financial statements should reveal the contingent liabilities where they have invested so that they can remain precautious from before.
6. Information about the Depreciating Assets
The investors must have an idea of the method that is used for depreciating assets so that they can know if any difference occurs. The difference is to be dealt with the use of cash and as such , depreciation method is an important element that is to be included in the financial statements.
Without a financial statement, the future of the company will be at stake. They should keep in mind the interests of the investors and work accordingly. Investors are required for the growth of the business.
