Financial Statement Analysis and Ratio Analysis for Decision Making

This assignment explores the significance of financial statements and ratio analysis in business decision-making. It begins by detailing the unique purposes of the income statement, balance sheet, and cash flow statement, emphasizing how each contributes to the value for the users of the statement. It also highlights the role of regulatory bodies in ensuring consistency and fairness in financial reporting. The assignment then delves into the importance of ratio analysis for both short-term and long-term strategic goals, comparing and contrasting liquidity ratios and profitability ratios. The analysis includes understanding the role of these ratios in evaluating a company's financial health and performance, providing insights for effective decision-making. The student’s work is available on Desklib, a platform that offers AI-based study tools and resources for students, including past papers and solved assignments.

ACCOUNTING

Answer 1
Each of the financial statements possesses unique details about the conduct of the
business activities. While the balance sheet depicts the worth of an entity at a given point of
time, the income statement provides the details of the revenues and expenses for a period in
consideration. In addition, the cash flow statement provides the information about the
liquidity position of an entity, as highlighted by the activities involving the cash transactions
(Williams & Dobelman, 2017). These collectively aid in the decision making by providing
useful insights about the financial performance, liquidity, profitability of the business in
which the capital and interests of users are invested. The regulatory bodies are significant as
these ensure that the financial statements are prepared in a consistent manner and depict the
true and fair view of the state of affairs of an entity.
Answer 2
The ratio analysis is a fundamental tool for the review of the financial performance of
the entity, as the same involves the analysis of various business aspects such as liquidity,
profitability, efficiency and the risk in the capital structure. In simple words the, information
needed for short term as well as long term is presented by shrinking the large volume of
financial data. Thus, there is a comprehensive evaluation, and the results are such that can be
compared as per the industry benchmarks as well as periodic performances (Robinson,
Henry, Pirie & Broihahn, 2015). While the liquidity ratios shed light on the day to day
business functioning and the availability of short term assets to meet short term liabilities, the
profitability ratios depict the overall efficiency of business activities, by comparing the
revenues and expense items with each other, as well as assets.

References
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. UK: John Wiley & Sons.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.