Module: Working with Financial Statements

In Chapter 3, we will learn about the tools we apply to financial statements to help us understand how a company runs. We will learn how to look at financial statements and understand the elements of each of the three major statements (income statement, balance sheet and cash flow statement) and the relationships within those statements.

Why do we need this information? Simple, financial statements represent the language of business. We use these to communicate to government agencies, investors and internally to other managers. Let's learn the language of business....

More specifically, after studying this chapter you should be able to explain:

• The basic types of ratios used in financial statement analysis (FSA)
• The measures used by organizations to gage efficiency
• The methodology of common-sizing statements and reading a financial statement

In Chapter 4, we learn what is financial planning in the corporate sense and which models are used in managing the finances of a company.

We will learn the answers to these questions as well as how external financing leads to growth of a company. These are the essential tools and missions of managers in a corporation and either as an employee or an investor we all need to understand these items.

Chapter 4 helps us understand how to prepare and utilize pro forma statements, sales forecasts, asset requirements, use economic assumptions and put these all together in models to aid in managing a company or understanding if a company is managed properly. We will understand what financial planning can accomplish in the business environment.

More specifically, after studying this chapter you should be able to describe:

• The mission of management in the financial planning process.
• The tools at our disposal to plan and manage a company.
• The manner in which budgets are developed for sales and asset needs assessments.
• How to determine a firm's cash flow from its financial statements.