Corporate Financial Statements - Essay Example

Corporate Financial ments Corporate financial ments are the formal financial reports that are made in relation to the financial activities of a business entity or a financial firm. All the relevant information in terms of the financial activities that take place in a specified financial period is disclosed in corporate financial statements. Therefore, corporate financial statements give a brief outlook of the short and long term financial profitability and ability of a financial firm or company.

Corporate financial statements include income statements, balance sheets, statement of cash flows, and statements of retained earnings (Rich 10). Corporate financial statements act as key tools used in the decision-making process. By simply looking at them, one can easily tell which the best financial decisions to make in terms of productivity and profitability are. Debts can easily make a financial firm go bankrupt. By looking at the debtors and the collection period, it is easy to tell what strategies a financial firm can implement to ensure that the debtors pay up in due time.

Statements of cash flows also show where the cash flow of the firm is being generated from and where improvements need to be made. They also show which areas the firm need to concentrate on in order to generate more cash flow in the near future, and in order to remain more profitable. The statements also act as very important decision-making tools for potential investors. They indicate the financial profitability, ability, and condition of a financial firm, and influence greatly a potential investor’s decision to invest.

The main objective of corporate financial statements is to be able to provide the relevant information needed by the main users of these statements in order to establish the financial position of the company and the performance of the company. Managers use these statements to be able to continue properly managing the company and making the desired managerial decisions that will ensure the performance of the company is excellent and correct any mistakes that may have been made by the other staff members.

The shareholders use these statements the make the necessary assessment on the risk and the return on the investments that they made on the company and therefore make the necessary decisions on whether to retain their shares with the company or withdraw their investment based on their analysis on these investments. Financial institutions such as banks use these statements to determine whether a company is credit worthy and can be given a loan or credit in the event they need financial aid. This will be based on the asset base of the company or the business entity and the liquidity of the company (Rich 15).

In the corporate world, competition has fueled most companies to do very well. Corporate financial statements help financial firms make comparisons with their competitors and ensure that they still maintain their competitive edge. There are set standards in every country that guide the preparation of financial statements and that ensure that they are set out in a specific manner, making comparison very easy. With this, it is very easy to state which company or financial firm is performing better than the other is.

This also encourages professionalism in the various companies as the prepared statements are effectively made according to the set standards. Corporate financial statements also show the sales pattern of a company and through them; companies can be able to assess the companys annual sales. Due to this, they are good for future planning (Rich 12- 26). Corporate financial statements unfortunately do not show a continuous analysis of how a financial firm or a company is performing. The statements can only show how a company is performing at one particular time, either at the onset of a financial period or at the close.

The statements also base their data depending on a given time, making it very hard to predict market patterns as they are always changing and cannot be based on figures given using corporate financial statements. Corporate financial statements also do not show the changes that occur in structure of a company. Structural changes in a company are very important and affect the performance of a company but it is very difficult to tell from these statements if any structural changes took place in a company or in a financial firm.

Structural changes include the addition of a new branch or a new plant, the launching of a new design or product, the preparation or a new acquisition or a merger. These structural changes can make a company more profitable, but are not inclusive in the corporate financial statements. All financial firms and companies also use the financial statements to establish their current financial position and future profitability. Works Cited Rich, Jay S. Cornerstones of Financial & Managerial Accounting.

Mason, OH: South- Western/Cengage Learning, 2012 .Page 8-29.