Managing Financial Resources: Types of Financial Statements and Ratio Analysis

MANAGING FINANCIAL
RESOURCES

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Q1.)..............................................................................................................................................3
Q2.)..............................................................................................................................................6
Q3.)..............................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
The file is about finance and relevance of financial statements and ratio analysis for the
investors. The file is about how the information assessed by the financials of an organisation
influences investors. The file shows ratio calculations and their interpretation for the company.
Different financial information required of different stakeholders has been discussed.
Q1.)
Types of financial statements and ratio analysis
There are different financials of an organisation which depict the financial health of the
organisation: Balance sheet, Profit and loss a/c and Trading a/c. Balance sheet is the statement
showing assets and liabilities in the income statement. The assets contain the long-term assets
and current assets and liabilities the long-term liabilities and current liabilities. The balance sheet
is the financial statement that provides the basis for computation of rate of return and evaluation
of capital structure. Balance sheet helps to handle the financial power and business capabilities.
The balance sheet helps to look at the financial condition of a company at a specified moment of
time, generally at the end of accounting period. The balance sheet comprises of assets, liabilities
and owners or equity stockholders. The assets and liabilities are divided in short term and long
term obligations which includes cash accounts like checking, money market or securities of
government (Osadchy and et.al., 2018). At a given point of time, the assets have to equal
liabilities plus the owner’s equity. Asset is some resource which the business owns and has
monetary consideration. It may be a fixed asset such as warehouse, land, building or assets in the
form of cash or accounts receivables or inventory. Liabilities can be claims of creditors against
business assets.
The use of balance sheet is that it can help business in identifying how it can optimally use its
assets and take steps to improve cash reserves. The balance sheet can help identify trends in
identification of receivables and payables. The balance sheet is the first financial report assessed
by investors who are looking for doing investments in firm (Prodanova and et.al., 2019).

Profit and loss a/c is also known as income statement. It shows the earnings and expenses of the
company during a financial period. This is a financial statement which depicts the revenues,
costs and expenses which are incurred during a specific financial period which is during a
quarter or year. The profit and loss provides information about ability of company to generate
profit by increase in revenue, reduction in costs, or both of them. It is also a document used by
investors which refers to how company is handling Profit and Loss statement by revenue and
cost management. It helps them know how well the company has controlled its operating costs
and how much of revenue has been able to generate through operating income. Investors also see
the net profit of the company.
Cash flow statement
It is a financial statement that summarise the amount of cash and equivalent entering and leaving
the company. The cash flow statement is a measurement of how the company is managing the
cash position, meaning how the company can generate cash to pay the debt and fund the
operating expenses. Investors understand how the operations of country are running, from where
the money is coming from and how money is being spent (Prodanova and et.al., 2019).
Analysis of ratios
Net profit ratio
The profit earned as a percentage of sales is referred to as net profit. It shows how much profit an
organisation has been able to make from its sales. It demonstrates a company's ability to manage
costs and produce revenue. It is a valuable tool for investors to determine if a company is
effective in converting sales into profit, and it is regarded as a critical tool for company
evaluation. It can be compared to other rivals because it is expressed as a percentage.
Current ratio
The current ratio is a metric that determines whether an organisation has enough working capital
to continue operating effectively. It indicates whether a company's existing liabilities can be paid
off with current assets. It represents the company's liquidity. The current ratio should preferably
be less than 3, indicating optimum resource utilisation (Palepu and et.al., 2020).