Outline Financial Statement Analysis

Current Ratio: Current ratio measures the capability of the company in paying current liability. Higher the current ratio, better the liquidity position of the company. Generally, a current

There are three main tools of Analysis. The first tool is the horizontal analysis. This method reviews a series of a company’s financial statement data over time period. This helps determine if an increase or decrease in sales. The formula for this method is by taken the current year amount subtract by the base amount divided the base year amount. The second method is the vertical analysis. This method evaluates the financial statement by expressing each as a percent of a base amount.

Efficiency Ratios tells us how well the company uses their assets to generate income. These ratios look at how long it takes to collect cash from customer and to convert inventory to cash. Efficiency ratios are connected with profitability ratios because if they are efficient, then they become profitable. The type of efficiency ratios include accounts receivable turnover and inventory turnover.

Two traditional approaches to fund programs are grants and donations. Grant funding is typically the largest revenue source for a human service organization. Vast arrays of different grants are available for funding purposes. The XYZ Corporation can utilize these funds from government private foundations. The second traditional fundraising method to fund programs is donations. Building a relationship with the community and having a confident CEO that will reach out for donations can impact the amount of donations your organization receives annually. The XYZ Corporation has a large clientele and therefore should be able to gain recognition within the community and gain donations.

Current ratio is type of liquidity ratio. It is a financial tool used to measure a company’s ability to pay off its short-term debts with its short-term assets. A company’s current ratio is expressed by dividing its current assets by its current liabilities. A higher current ratio means the company is more capable of paying off its debts. If the current ratio is under one, this suggests the company is unable to pay off its obligations if they were due at that point (Investopedia, 2013). Companies that have trouble collecting money for its receivables or have long inventory turnovers can run into liquidity problems because they are unable to lessen their obligations.

In addition to historical financial data, financial analysis must incorporate business intelligence into any review that is peripheral to the entity being assessed as well as forward looking. For instance, consideration should be given to general economic conditions at regional, national and international levels to ensure that analytical review procedures appropriately factor potential impacts (favourable or unfavourable) that may influence prospects for the firm, its region or sector.

• Write an essay in 250 to 300 words an explanation of the three tools of financial statement analysis and the function of each.

Current Ratio is the measure of short-term liquidity. It indicates that the ability of an entity to meet its

The current ratio lets one know what is exactly happening in the business at the present time. The current ratio is defined as current assets such as accounts receivables, inventories any type of work in progress or cash that are divided by the business current liabilities. Business liabilities can consist of many things such as insurance on building, employee insurance these liabilities way heavy on any type of business especially one that is large as Landry’s Restaurant.

A vertical and horizontal analysis of each company's balance sheet and income statement in this particular case will be enlightening. A vertical analysis will for instance shed some light on how revenue is being used. In this case, each component of the companies' financial statements will be converted into a percentage of a key component of either the balance sheet or the income statement. A special common size balance sheet and income statement will be utilized to ease comparison. The

Financial statements are a very useful tool for individuals interested in the organization. Investors use the information to determine if it a wise decision to put their money into the organization. Investors need to determine if the organization has been successful and profitable and will continue to be successful and profitable. Creditors use the financial statements to determine the amount of credit that should be advanced to the organization. Employees generally do not look at the financial statements, but if a new executive was thinking of joining the organization, he or she may want to see the potential of the organization to make sure the investors are becoming a part of a successful organization. Management uses the financial statements on a monthly basis to determine which areas of the organization are profitable and which areas of the organization that needs to be discontinued or restructure to become more profitable.

Horizontal analysis is the comparison of financial information in an organization’s statements over a certain period of time, while vertical analysis compares the percentage of each item in accounts, assets, and debt financing on a balance sheet or income statement.

Internal auditors cannot effectively provide an analysis on the company’s internal dealings as they are part of the company. External auditors, however, can observe these processes from the outside and then determine where the funds of the company and whether the dealings adhere to the regulations. Using external auditors in a company prevents conflict of interest from happening. Conflict of interest is a situation where an individual or organization has multiple interests and of those multiple interests, one could possible corrupt the motivation for an act on the other when the auditor has any kind of beneficial interest in their client’s performance. In other circumstances, there is also the threat of familiarity where auditors become

Firms and Companies include ‘Ratios’ in their external report to which it can be referred as ‘highlights’. Only with the help of ratios the financial statements are meaningful. It is therefore, not surprising that ratio analysis feature are prominently in the literature on financial management. According to Mcleary (1992) ratio means “an expression of a relationship between any two figures or groups of figures in the financial statements of an undertaking”.

The term efficiency has a lot to do with the business entity. A person who is efficient is important to both the managers and the employees. Efficiency shows using rarer inputs and then producing more outputs. Efficiency also means performing the duties that they have been assigned without making any mistake. It should be kept in mind that the employee should be efficient and he should perform his