Financial Statements
Mark Cohea
University of Phoenix
Accounting
NWMBA21
Dale E. Stoeber
Dec 08, 2012
Financial Statements
A new wave is surging across America. Politicians and citizens are demanding changes in how to evaluate teachers. The old method of using observations to assess the quality of a teacher’s ability is being discarded along with vacuum tube televisions and being replaced with a new method. The educational system has ripped out a page from measuring the success and failure of businesses. The new “buzz” word in teacher evaluations is data. In a few, short years all teachers will have a majority of their evaluations tied to test score numbers or test score growth. Legislatures have decided that the best way of appraising teachers is by the use of data, or numbers. Although there are some flaws in this methodology, the wave is getting stronger and larger every day.
All types of businesses have been using this technique to communicate and analyze their business for years. Companies are judged primarily on the numbers they post. Corporations are required, by law, to make their numbers public on a quarterly basis. Accounting rules and regulations require corporations to report their numbers according to a uniform standard. “Corporations are artificial beings existing only in contemplation of law.” (Rodgers, 2012). Financial statements are the window into the performance of a company, so all corporations must adhere to the same set of accounting rules. Different financial statements are designed to communicate specific information to particular individuals. A person must choose the precise financial statement to peruse that best matches his objectives. Let us examine four of the most prominently used financial statements.
Investors will analyze the income statement of a company before deciding to buy their stock. The most utilized formula investors use is the price/earnings ratio and the earnings numbers are included in the income statement. This statement displays total revenue and the net income or loss of a company. Shares of a company generally move in the same direction as the earnings reported by companies. Most investors will delve deeper inside a company’s numbers and will analyze their balance sheet. The balance sheet will list all if the assets, liabilities, and stockholder’s equity of a company. This statement is a mirror into the financial stability of a company. It can, also, foretell the future direction of a company by identifying long-term and short-term assets such as land, buildings, machinery, and equipment. Short-term and long-term liabilities are displayed on the balance statement. These figures, when compared to other numbers on the statement, will indicate if the company is over leveraged or has the resources to expand.
Creditors want to look at a company’s balance statement to determine their credit risk. Dun & Bradstreet requires a company furnish them with a balance sheet before
