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Income Statement Essay

The purpose of this memo is to explain the bases for comparison in analyzing key common financial templates for Ventura Electronics and discuss also its limitations. Fundamental Financial Statements The most common and often reviewed financial statements by analysts are the Income Statement, Balance Sheet, and the Cashflow Statement. First, is the Income Statement, the main function of this statement is to provide an overview for managers, executives and shareholders on the firm’s total earnings over a specific time frame.

It is also sometimes called as the “Profit and Loss statement” since it shows how Ventura’s business operates with its expenses and revenues for the company’s “operating and non-operating activities”. Basically the definition of operating and non operating activities on our firm is pretty much self-explanatory, but for the purpose of avoiding confusion and clarification, operating activities essentially means that these are the activities that have the direct impact on Ventura’s regular operations, such as manufacturing and selling electronics.

On the other hand non-operating activities only means expense and revenue data and figures that are not linked directly to Ventura’s operations, as an example would be selling and old machinery that was previously used for production. But most importantly what the Income

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statements tells us is whether the firm has gained a Net Income or simply a profit or incurred a loss during that specified time. The Balance Sheet is simply another statement that covers Ventura electronics total assets, liabilities and also Shareholder’s equity.

Basically it tells us how much cash Ventura have and also at the same time how much Ventura owes and the remaining amount would be for Ventura’s shareholders. The components of the balance sheet shows Ventura’s current assets which basically are cash, receivables, inventories etc. as well as intangible fixed assets that Ventura has, on the other side of the balance sheet, we can see both the current and long term liabilities together with the shareholder’s equity. By its name itself the balance sheet follows the formula of “Assets = Liabilities + Shareholders’ Equity” to balance all necessary figures.

Next is the Cashflow Statement, this is another important tool in which to assess and understand how Ventura electronics as a business is running, by having to look on the sources of cash income as well as expenses. It only not records cash from sales it also includes other investment sources in which Ventura may have earned and paid as well. All these common three financial statements serves as a basis for us to analyze Ventura Electronics profitability, cash position and on those results create and suggest different strategies to continue to improve overall operations from an increased in revenue stand point or a cost-cutting measure.

Financial Statements for to be used as tools for analysis From the financial statements one can derived several methods for analysis; such are “Trend Analysis, Vertical Analysis and the most common Ratio Analysis”. The first two analysis focuses on historical data in which can be viewed in a dollar and percentage for to show changes in Ventura’s overall performance. The Ratio Analysis however, can assess current operations as well as compare its performance to not only Ventura’s past performance but to other firms or standards of the industry as well.

Using Ratio Analysis we can study how efficient are we running operations and at the same time study the risks or potential risks that is affecting overall performance. Basic calculation for formulas can be applied with Ratio analysis using of course the financial statements to know Ventura’s Liquidity Ratios, Leverage Ratios, profitability ratios and other Operational Ratios can also be computed. Limitations Although those financial statements cited above have relatively helpful purposes for our analysis, it has in its own; limitations.

Going back to the Income Statement, what we can see there would be the firm’s profitability on a given accounting year, this would be signified by either a Net Income or a Net Loss, and however it would not explain clearly Ventura’s Cash Position, unlike what a cash flow statement would represent. On the Cash flow Statement on the other hand even though there is a section to see where money is spent, it does not cover the whole current and long term liabilities that Balance Sheet can provide.

That is why it is important to base strategies for Ventura Electronics after only analyzing carefully these common financial statements. Then, one may opt to use the figures in these statements to create some sort of a Ratio Analysis to have a more precise assessment. It is also important to note that Ratio Analysis alone, does not guarantee a full proof result as to project future earnings for Ventura electronics, but could definitely act as a guideline to evaluate current key strengths and areas for improvement.

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