- Home
- Finance and Accounting
- Loans
- Important Accounting Statements
Important Accounting Statements
- By Rickson Martin
- Published 1 January 2009
- Loans
- Unrated
The knowledge about basic accounting principles is not just important for accountants but also for investors to help in the share-picking process. One of the important accounting procedures in any business is Balance sheet. It reflects the overall financial condition of a company on a particular day. It includes information about company's assets, liabilities and its net worth.
To determine the exact financial position of a business just balance sheet will not help as it give you only restricted information, therefore you should compare it to the company's past results. Here are some of the basic questions that one must ask to determine the financial potency of a company:
Has the overall worth of the company increased during the last six months or a year? A comparison between the past two financial years will give you a better picture about the size and financial strength of a company.
How do the single items evaluate with those in the prior periods? Here, single items refer to accounts receivable, it indicates about the position of company’s debtors.
Ask about the liabilities ration in comparison
to company’s assets. Because, a company could experience cash flow difficulty if accounts payable is more than accounts receivable.
Is the company's Net Worth increased than the previous year? Only a financially sound company would experience increase in its earnings.
Investors should also compare the company’s profit of the last two financial years to check the consistent growth. In case, you don’t have the time to examine all two financial statements, then make sure to check the cash flow statement. A cash flow statement would indicate resource management of the company. This statement is mainly divided into three sections: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. The information provided in these sections would indicate the balance sheet line items have changed over the accounting period.
Apart from these financial statements, investors must also have a look at the Value-Added Statement and the Statement of Changes in Equity. Make sure to read the notes provided at the bottom of the financial statements, includes minute information about balance sheet, income statement and cash flow statement.
To determine the exact financial position of a business just balance sheet will not help as it give you only restricted information, therefore you should compare it to the company's past results. Here are some of the basic questions that one must ask to determine the financial potency of a company:
Has the overall worth of the company increased during the last six months or a year? A comparison between the past two financial years will give you a better picture about the size and financial strength of a company.
How do the single items evaluate with those in the prior periods? Here, single items refer to accounts receivable, it indicates about the position of company’s debtors.
Ask about the liabilities ration in comparison
Is the company's Net Worth increased than the previous year? Only a financially sound company would experience increase in its earnings.
Investors should also compare the company’s profit of the last two financial years to check the consistent growth. In case, you don’t have the time to examine all two financial statements, then make sure to check the cash flow statement. A cash flow statement would indicate resource management of the company. This statement is mainly divided into three sections: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. The information provided in these sections would indicate the balance sheet line items have changed over the accounting period.
Apart from these financial statements, investors must also have a look at the Value-Added Statement and the Statement of Changes in Equity. Make sure to read the notes provided at the bottom of the financial statements, includes minute information about balance sheet, income statement and cash flow statement.
