Summary
This article is very useful in terms of analyzing financial statement in a insiders' point of view for small business owners. The superficial numbers could be misleading. In order to find some deeper casues of the performance of a company, the writter suggest we do a monthly average. Companies can try to bury ongoing expenses in one-time charges and inflate their earnings. For example, you’ll see that in the first year of their presentation on Google's income statement, Google made a one-time contribution to the Google Foundation. The obvious numbers showed on the financial statement are not enough, we need to dig deeper.
Connection
We did a presentation about analyzing financial statement. If we use some of the techniques in the article, we can get a higher mark. Numbers on a financial statement can be very nice. Howerer, it can also hide its financial problem. Sometimes we also need to do our own comparisons. For example, a company with a net earning of $3 billion isn't always better that another company with a net earning of $300 million. Don't overlood the obvious.
Inflection
Leaning to analyze financial statement is helpful in many ways. It helps if a person wants to open his own pracise such as a doctor or a lawyer. If we want to invest in the stock market, analyzing financial statement helps us to find the best investment. I 'm glad I take both Accounting and Financial Accounting. I can see the process in both ways. I've been doing some stock market investments recently. It's not easy to choose the best company. The techniques in the article can give me some help. I hope my investment can earn me some money.
I agree with your comment on how we should sometimes do our own comparisons on financial statements because many insiders and outsiders of companies may hide other information that may either cause people to not invest in their business or result in a reputation that may not be desirable. This article can provide a good understanding of how to analyze financial statements from an insider's point of view, especially the person who owns the business. I find important information within the article regarding how one should remember the figure of their cash flow not only from the current month but also the previous months also so one can have a good concept of how much money one has and how much one can use for one's business.
ReplyDeleteLearning how to analyze financial statements is a crucial technique one must learn, particularly when pursuing a career in business. Some businesses purposely arrange their financial statements and figures in a way that create a better impression of the company. I once calculated the current ratio for Shaw Communications and found that the annual and quarterly current ratio differed by 0.69. For bankers, the number could just be the answer to whether they should lend money to the company. Bankers examine the financial ratios of a company to be certain that the company has enough liquidated assets and financial means to return the loan. The managers of the company, on the other hand, have to ensure that their figures are within the 'good' range, so that they can borrow money from banks. Therefore, both insiders and outsiders of a company desire the financial ratios to be within the expected range of values. While comparing the performance of two companies, the figures also have to be converted to percentages in order to determine the actual increase of profit over the years.
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ReplyDeleteI rally think that there should be one standard way to produce financial statements. This way should be consistent from quarter to quarter, and from company to company. To make businesses oblige to this standard way of producing financial statements, it should be made law so that companies would be fined if they refused to follow. Doing this would have benefits for both insiders and outsiders. Insiders would be better able to make informed decisions about their company. Outsiders would be able to easily see whether a company is a good investment.
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