Summarized-Report-on-Accounting-Information-used-for-Financial-Decision-Making (1).docx

Summarized-Report-on-Accounting-Information-used-for-Financial-Decision-Making (1).docx

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Report on Accounting Information used for Financial Decision Making On Emphasis Towards Cash Flow Statements, Financial Statement Analysis And Its Corresponding Ratios Group 7 Report submitted by : AUTENTICO, Gia BANTULO, Charie Rose C. BATTUNG, Louise Bryan CONSTANTINO, Jarue MAPUTE, Angelic Gleam
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7.1 Understanding the 4 key Financial Statements Figure 1 By highered.mheducation
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Link between Financial Statements Figure 2 Ammar Ali, Abdul Majid 7.2 Cash flows The statement of cash flows is part of the financial statements issued by a business, and describes the cash flows into and out of the organization. Its particular focus is on the types of activities that create and use cash, which are operations, investments, and financing. Though the statement of cash flows is generally considered less critical than the income statement and balance sheet, it can be used to discern trends in business performance that are not readily apparent in the rest of the financial statements . It is especially useful when there is a divergence between the amount of profits reported and the amount of net cash flow generated by operations. There can be significant differences between the results shown in the income statement and the cash flows in this statement, for the following reasons: There are timing differences between the recordation of a transaction and when the related cash is actually expended or received. Management may be using aggressive revenue recognition to report revenue for which cash receipts are still some time in the future. The business may be asset intensive, and so requires large capital investments that do not appear in the income statement, except on a delayed basis as depreciation.
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Many investors feel that the statement of cash flows is the most transparent of the financial statements (i.e., most difficult to fudge), and so they tend to rely upon it more than the other financial statements to discern the true performance of a business. Understanding Cash Flow Analysis Working capital is an important part of a cash flow analysis. It is defined as the amount of money needed to facilitate business operations and transactions, and is calculated as current assets (cash or near cash assets) less current liabilities (liabilities due during the upcoming accounting period). Computing the amount of working capital gives you a quick analysis of the liquidity of the business over the future accounting period. If working capital appears to be sufficient, developing a cash flow budget may be not critical. But if working capital appears to be insufficient, a cash flow budget may highlight liquidity problems that may occur during the coming year. Reasons for Creating a Cash Flow Budget Think of cash as the ingredient that makes the business operate smoothly just as grease is the ingredient that makes a machine function smoothly. Without adequate cash a business cannot function because many of the transactions require cash to complete them.
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