Financial Statements Response Guidelines Respond to at least two peers (see attachedment). Your responses should be substantive and could involve one or more of the following: ◦Debate the topic
Page 1 of 3Response Guidelines Respond to at least two peers (see below). Your responses should be substantive and could involve one or more of the following:
◦ Debate the topic.
◦ Ask a probing question.
◦ Share an insight you gained from your peer's post.
◦ Make a suggestion.
◦ Share a personal experience related to the topic.
◦ Expand on your peer's post.
The replies should be at least 50 words minimum. STUDENT 1 Compare and contrast the balance sheet, income statement, and cash flow statement.
A balance sheet presents a company’s financial position of assets, liabilities, and shareholders’ equity at the end of a specified t ime. It is the company’s financial statement that provides a snapshot of what the company owes and owns, and the amount of shareholders investments (“Balance sheet,” n.d.). The income statement reports a company’s financial performance for a specific accounting period (“Income Statement,” n.d.). Lastly, the cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents; it breaks the analysis down to operating, investing, and financial activities (“Cash Flow Statement,” n.d.).
What is the most important segment of cash flow statement? Why?
The most important segment of a cash flow statement is the operating cash flow; this is cash generated from normal day-to-day business operations. The operating cash flow indicates the company’s capabilities to generate positive cash flow to maintain and grow its operations (“Operating Cash Flow,” n.d.).
Can the cash flow statement be manipulated? If so, how? If not, why not?
There are ways to manipulate cash flows. One way to manipulate cash flow is to change accounts payables. This is done by writing checks and does not deduct that Page 2 of 3payable amount before the check is actually deposited. Instead, the funds are reported in operating cash flow as cash on hand. Another way to increase cash flow is to accelerate collection of receivables. Accounts payable decreases cash flow while receivables increases cash flow. A company could increase its cash flow by accelerating the identification of funds coming in and delaying the identification of funds leaving the company (“What are some examples,” n.d.).
Are most investors sophisticated enough to interpret cash flow statement? Should they be?
I believe most investors are not sophisticated enough to interpret cash flow. It is important to understand cash flow, as it summarizes the amount of cash and cash equivalents entering and leaving the company. Understanding the cash flow statement of the company is important, as it shows the company’s financial health to generate positive income that can be utilized to sustain and grow the company.
References:
Balance Sheet. (n.d.). Retrieved from https://www.investopedia.com/terms/b/balancesheet.asp Cash Flow Statement. (n.d.) Retrieved from https://www.investopedia.com/terms/c/cashflowstatement.asp Income Statement. (n.d.). Retrieved from https://www.investopedia.com/terms/i/incomestatement.asp.
Operating Cash Flow. (n.d.) Retrieved from https://www.investopedia.com/terms/o/operatingcashflow.asp .What are some examples of how cash flows can be manipulated of distorted? (n.d.).
Retrieved from https://www.investopedia.com/ask/answers/111714/what-are-some- examples-how-cash-flows-can-be-manipulated-or-distorted.asp . Page 3 of 3STUDENT 2 The balance sheet, income statement and cash flow statement are all financial statements that provide useful information to shareholders for evaluating a company’s profitability and financial condition. Publicly traded companies are required to use and release these financial statements.
The income statement provides information about a company’s income or loss. There are two segments on an income statement; income and expense. The income shows what the company earned, and the expense shows what cost the company incurred.
The balance sheet provides information on where a company stands financial. The balance sheet is separated into three segments; assets, liabilities and equity. Assets are things the company owns. Liabilities are things the company owes. Equity is what the company owes to its shareholders/stockholders.
The cash flow statement provides information about the overall flow of cash that flows into and flows out of a company. The cash flow statement is separated into three segments; operations, investing and financing. The operation segment shows how much cash the company makes from its products or services. The investing segment shows how much cash the company makes from its investments in its future growth. The financing segment shows how much cash the company makes through issuing stocks or bonds. The financing segment is the most important segment because its shows how much cash the company raised through issuing stock. The cash flow statement can be manipulated, which make it appear higher than it should be and makes the company seem like there in a great financial position. There are different ways the cash flow statement can be manipulated, and they are as follow:
by misusing non-operating cash, accelerating collection of receivables/delaying accrued expenses or payables and selling accounts receivable. No most investors are not sophisticated enough to interpret a cash flow statement, but they should be because the statement will allow them to see if a company is able to cover their short-term cost and help them to evaluate the value of the company.
Reference What are Financial Statements? (2017) Retrieved from http://accounting- simplified.com/financial/statements/types.html
