communication of financial information about economic entities such as businesses and corporations. An efficient and systematic accounting system is the key to an efficient business management. Balance Sheet A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
The balance sheet adheres to the following formula:
Valuable and discharged by liquidating marketable items owned equal valued assets. Net worth/ Book Value by the company. It include loans, It is also a liability Cash, receivables, accounts payable, owned by the company financial investments, mortgages, deferred to its shareholders tangible assets revenues and accrued expenses. Income Statement An income statement is a financial statement that reports a company's financial performance over a specific accounting period.
Financial performance is assessed by giving a summary of
how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period.
Post facto statement: It records what has already happened
but not what is expected to happen in future. Financial Ratios A financial ratio or accounting ratio is a relative magnitude of two selected numerical values taken from an enterprise's financial statements.
It can be derived from a balance sheet or income
statement Types of ratios Current Ratio = Current assets/ Current Liabilities Quick Ratio (short term solvency in a business) (Cash + Accounts Receivable + Short-term Investments) / Current Liabilities. [ Inventory, supplies and prepaid expenses are excluded from it] Lets assume Caroles Clothing Store is applying for a loan to remodel the storefront. The bank asks Carole for a detailed balance sheet, so it can compute the quick ratio. Caroles balance sheet included the following accounts: Cash: $10,000 Accounts Receivable: $5,000 Inventory: $5,000 Stock Investments: $1,000 Prepaid taxes: $500 Current Liabilities: $15,000 The bank can compute Caroles quick ratio like this. (10000 + 5000+ 1000)/15000 Working Capital = Current assets current liabilities Lets look at Paulas Retail store as an example. Paula owns and operates a womens clothing and apparel store that has the following current assets and liabilities: Cash: $10,000 Accounts Receivable: $5,000 Inventory: $15,000 Accounts Payable: $7,500 Accrued Expenses: $2,500 Other Trade Debt: $5,000 Paula would can use a net working capital calculator to compute the measurement like this: (10000 + 5000 + 15000) (7500 + 2500 + 5000) = 15000 Debt to Equity: The debt to equity ratio shows the percentage of company financing that comes from creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank loans) is used than investor financing (shareholders).
Total Liabilities/ Total equity
Gross Margin = (Gross Profit / Net sales)* 100
Profit Margin = (Net income after tax / Net
sales)* 100
Earning Per share = Net income after tax /
weighted average no of common shares outstanding INCOME STATEMENT The income statement is the small business owners profit and loss statement for the business firm.