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Using Financial Statements As a Management Tool

They're not just for accountants, investors and lenders

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A financial statement is more than just a snapshot of your business’ health that you provide to shareholders or potential investors: It’s also a powerful diagnostic tool business owners can use to evaluate their firm’s strengths and weaknesses and chart the way forward.

This three-part series will explain how to craft a balance, income and cash flow statement, guiding you through the criteria and terminology, demonstrating how to calculate the ratios that reveal your company’s fiscal health and its standing among the competition, and suggesting ways to improve your outlook.

A brief explanation of the three statements:

  • Balance sheet: The balance sheet is often described as a snapshot of a company’s performance at a given time, such as the end of a quarter or fiscal year. The balance sheet identifies your company’s assets and liabilities -- divided into near- and long-term obligations -- and stockholders’ equity.
  • Income statement: Also known as a profit-and-loss statement, the income statement summarizes a company’s revenue and expenses for a given time period.
  • Cash flow statement: This records the amounts of cash and cash equivalents that flowed into and out of a company in a given period. It is used to measure how much cash a company has on hand, which influences its ability to pay suppliers and employees and to meet other near-term obligations.
Continue: Part 1 – The Balance Sheet

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