You have been named the Chief Financial Officer (CFO) of a two year old company, CUNY Analytics. Financials have been prepared by a bookkeeper. As CFO, you responsible for the preparation of accurate financials, analysis and review of the financials before they are released and communication of the results of your company to banks, investors, creditors and the government, as necessary.
Please complete the following:
a. What are the four major financial statements and, in depth, discuss their purpose.
• Income Statement
Reports revenues and expenses for a specific period of time. A firm's revenues, gains, expenses and losses are listed on the income statement. Revenue is money earned from a company’s…show more content… The net income listed on the income statement is added to the beginning retained earnings balance and the amount of dividends paid out to shareholders is subtracted to get the ending balance. The ending balance for common and preferred stock and the ending balance for retained earnings is added together to get the total of the shareholders’ equity.
b. If an outsider is looking for the path of growth of your company, where would you direct them to look? What financials and financial information would they look at?
I would advise them to look at the Earnings Per Share and all the other Profitability Ratios listed below. Earnings per share (EPS) measures the net income earned on each share of common stock.
Also, three main factors must be considered.
Firstly, the earnings growth because it examines the current reported earnings, which should exceed the previous reported earnings. The higher the growth, the better. This shows the company's historic ability to grow earnings.
Secondly, the earnings stability must be considered because it is a measure of how consistent those earnings have been in a company’s history.
Thirdly, the quality of earnings must be considered in the evaluation of a company's status. A company that has a high quality of earnings provides full and transparent information that will not confuse or mislead users of the financial statements.
