Financial Statement Essay

Chapter 4 Financial Statements

Financial statements was the main topic of Chapter Four. It focuses on three perspective of financial statement users. Investors, Managers, and Creditors are the stakeholders who utilize these statements. In the process of viewing these numbers, different type of users apply different formulas to evaluate and make-sense of these numbers. People use a different form of financial statement called the common-size financial statement; they are different compared to financial statement based on how the data is presented. These numbers are necessary because it offers user the chance to compare companies with different sizes by using percentages as a common factor. These percentages could be used by managers to detect trends that the firms may have or make decisions based on the information given.

Understanding financial statement is a crucial process that is needed to expand my life goals. I was able to distinguish between a financial statement and common-size financial statement. Percentage is much easier to compare then dollar amount because it offers a clear picture of where a company is standing base on a common number.  The decision making role that comes with company comparison is crucial especially if the company has many competitors.

After being able to acknowledge the three stakeholders that uses financial statement. I am better equipped to understand what my future clients are expecting. At the same time, it benefits me as manager to notice what I should be seeking. As a manager my goal is to increase profitability for the firm. In order to boost profits, I must make key decisions based on past data that are found in the financial statement. These data will help me with budgeting task and creating purchase schedules as an operation manger.

The most important information given in this chapter are the ratio formulas. They are used to give more meaning to financial statements rather than numbers that are stated. The formula that will apply to my career has to do with the majority of the ratio given. Utilizing the importance of scaling, other ratio could be created to identify solutions to other problems; such as how much people to hire based on net sales or how much money to spend on new equipment. Since my goal is to become a master scheduler/ purchasing manager/operation manger, inventory data is vital to run a successful company. I would be focusing on utilizing the inventory turnover method to determine how much the firm is profiting for every dollar invested in the inventory. Also, I would be applying the days’ sales in inventory to see how fast the inventory is selling. Based on the given data I will be able to decide whether to increase, decrease, or terminate the product. This is important for operation manager because they are determining what to make/buy based on historical data. The consequences of ordering too much or less could damage the company overtime.