Financial

Statements Rhea G. Jardin

SPENTREP S10

Three (3) Financial Statements

The financial statements (FS) show the

financial health of a business

1. Profit and Loss

2. Cash Flow

3. Balance Sheet

Profit and Loss Statement

• Summarizes the revenues, costs and

expenses incurred during a specific period

of time (quarterly, fiscal, year)

• Provides information that shows the ability

of a company to generate profit by

increasing revenue and decreasing costs

• Also known as “income statement” or

“income and expense statement”

Profit and Loss Statement

Cash Flow Statement

Cash Flow:

• A revenue or expense stream that changes a

cash account over a given period

• Essential to solvency of a company

Statement of Cash Flow:

• Shows the amount of cash generated and used

in a given period

• Indication of a company’s financial strength

• It helps investors see if a company is having

trouble with cash

Cash Flow Statement Cash Activities (inflows / outflows):

1. Operations

- Depreciation expenses

- Deferred taxes

- Account receivables / Account payables

2. Investing

- Investing of excess cash in different investments (stocks/bonds)

- Buying or selling of subsidiaries

- Acquisition/dispose of physical property such as PPE

3. Financing

- Long term liabilities

- Stockholders’ equity

- Dividend payments

Cash Flow Statement

Cash Flow Statement Four (4) steps in managing cash flow

1. Measuring cash flow

- Prepare cash flow projections

- Know when payments, interest earnings, collections and other

sources are going to get in

- Detailed knowledge of amounts and dates of upcoming cash

outlays (rent, inventory, wages, utilities, debt payments)

2. Improving receivables / speed of collection

- Offer discounts who pay bills rapidly

- Ask for deposit payments at the time of order

- Require credit checks on noncash customers

- Track accounts receivables to identify and avoid slow-paying

customers

Cash Flow Statement

3. Managing payables

- Take full advantage of creditor payment terms

- Use electronic fund transfer on the last day they are due

- Communicate with your suppliers if you need to delay payments

- Carefully consider vendors’ offers of discounts for earlier

payments

- Don’t always focus on lowest price when choosing suppliers –

consider flexible payment terms

4. Surviving shortfalls

- Be aware of cash shortfalls as early and as accurately as

possible

- Choose the bills you’ll pay carefully (payroll, crucial suppliers)

Balance Sheet

• Summarizes a company’s assets, liabilities and

shareholders’ equity at a specific point in time

• A tool to calculate the net worth of a business

(financial ratios)

• The 3 segments give investors an idea as to

what the company owns and owes, as well as

the amount invested by the shareholders

• It is called such because the two sides balance

out

Assets = Liabilities + Shareholders’ Equity

Balance Sheet

Sources

• http://www.investorwords.com

• The Ins and Outs of Cash Flow Statements

http://www.entrepreneur.com/article/178302

• How to better manage your cash flow,

http://www.entrepreneur.com/article/66008

• http://www.investopedia.com