Financial Statements are formal records of a business' financial activities. Basic statements include: Balance Sheet - Reports on a company's assets, liabilities, and net equity at a given point in time. Income Statement - Indicates how revenue is transformed into net income. Cash Flow Statement - Describes a company's cash activities, specifically its operating, investing, and financing activities.
Liquidity measures how a company can pay its bills
Current Ratio = Current Assets / Current Liabilities → Greater than 2 is considered good
Working Capital = Current Assets - Current Liabilities → Should be positive
Quick Ratio = Current Assets - Inventories / Current Liabilites → Greater than 1 is considered good
Solvency measures how much debt a company has.
Debt to Equity Ratio = Total Liability / Total Owner's Equity → 1 or less is considered good
Profitability measures how much money the company makes.
Breakeven = Fixed Costs / Selling Price - Variable Cost per Unit
Target Volume = Fixed Cost + Profit / Selling Price - Variable Cost per Unit
Return on Assets = Net Income x 100 / Total Assets → Decreasing return on assets may mean that assets grow faster than sales (not a good trend)
