6 Questions
What is the primary purpose of a balance sheet in financial statements?
To provide a snapshot of a company's financial position at a specific point in time.
What are the three main components of an income statement?
Revenues, expenses, and net income.
What is the primary purpose of a cash flow statement?
To summarize a company's inflows and outflows of cash over a specific period of time.
What is the difference between current and non-current assets?
Current assets are expected to be converted to cash within one year or less, while non-current assets are not expected to be converted to cash within one year.
What is vertical analysis in financial statement analysis?
A comparison of financial statement items as a percentage of a base item.
What is the purpose of retained earnings in a company's equity?
To represent profits reinvested in the company.
Study Notes
Financial Statements
Types of Financial Statements:
-
Balance Sheet: A snapshot of a company's financial position at a specific point in time, including:
- Assets: resources owned or controlled by the company
- Liabilities: debts or obligations owed by the company
- Equity: ownership interest in the company
-
Income Statement: A summary of a company's revenues and expenses over a specific period of time, including:
- Revenues: income generated from sales or other activities
- Expenses: costs incurred to generate revenues
- Net Income: profit or loss for the period
-
Cash Flow Statement: A summary of a company's inflows and outflows of cash over a specific period of time, including:
- Operating Activities: cash flows from core business operations
- Investing Activities: cash flows from investments or divestitures
- Financing Activities: cash flows from debt or equity financing
Key Components of Financial Statements:
-
Assets:
- Current Assets: expected to be converted to cash within one year or less
- Non-Current Assets: not expected to be converted to cash within one year
-
Liabilities:
- Current Liabilities: expected to be paid within one year or less
- Non-Current Liabilities: not expected to be paid within one year
-
Equity:
- Common Stock: represents ownership interest in the company
- Retained Earnings: profits reinvested in the company
Financial Statement Analysis:
- Horizontal Analysis: comparison of financial statement items over time to identify trends
- Vertical Analysis: comparison of financial statement items as a percentage of a base item (e.g. sales)
- Ratio Analysis: calculation of financial ratios to evaluate performance and position (e.g. debt-to-equity ratio)
Test your knowledge of financial statements, including balance sheets, income statements, and cash flow statements. Learn about the key components and analysis techniques, such as horizontal, vertical, and ratio analysis.
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