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The application of the balance sheet
Analysis of financial statement
Analysis of financial statement
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As the end of the year approaches, small business owners look for ways to become more profitable in the coming year. Retailers closely monitor their profit and loss (P&L) statement to evaluate the financial goals they need to reach in order to make a profit. A P&L statement can shed light on whether a business has the capital to start and sustain itself and where a retailer might reduce its costs or increase sales to reach the projected net profit. P &L statements are also developed to guide retailers toward their financial mark; if a company is off the mark a retailer can determine where to adjust to meet the mark, keeping net profits in the black.
P&L Significance
A profit and loss or income statement is an important tool for retail success. The significance of a P&L statement is to help retailers develop a sales targets to reach, price goods at the appropriate price and determine if their total operating expenses are too high relative to sales and need to be adjusted. It is a check and balance system for a business to account for all money spent, made and owed which keeps a business on track to reach its projected financial goals.
Each portion of the P&L statement plays an important role in the overall picture of a companies profitability. Net Sales is driven by the amount of product a retailer sells. However, net sales has to account for any discount, sales returns and sales allowances to calculate an accurate dollar figure.
The cost of goods directly affect the overall net sales of the retailer and is usually the largest expense on a P&L statement. Cost of goods (COG) accounts for the raw goods and labor combined to produce an item. One retailer might sell only fifty units a year compared to another retailer ...
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...ime avoid bankruptcy. Both the P&L statement and the balance sheet give a retailer an objective view of business activities they might not otherwise see.
The use of a P&L and balance sheet provides opportunity for a retailer to meet goals, project growth and manage money by analyzing the data.
Works Cited
http://smallbusiness.chron.com/significance-gross-profit-margin-4132.html
Bigger Pockets., (2009).Importance of operating expenses & operating expense ratios. Retrieved from http://www.biggerpockets.com/blogs/1272/blog_posts/23423-importance-of-operating-expenses-and-operating-expense-ratios
Berman, B., & Evans, J.R. (2013). Retail management: A strategic approach (12th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.
Small Business Development., (2013). Retrieved from http://www.smallbusiness.wa.gov.au/understanding-profit-loss-statements/
Levy, Michael, Barton A. Weitz, and Dhruv Grewal. Retailing Management. ed. New York, NY: McGraw-Hill Education, 2014. Print.
A strong balance sheet gives an investor an idea of how financially stable the company really is. Many professionals consider the top line, or cash, the most important item on a company’s balance sheet. The big three categories on any balance sheet are “assets, liabilities, and shareholder equity.” Evaluating Barnes & Noble’s assets for the time 2014 at $3,537,449, 2013 at $3,732,536 and 2012 at $3,774,699, the company’s performance summarizes that it is remaining stable. These numbers reflect a steady rate over the three year period. Like assets, liabilities are current or noncurrent. Current liabilities are obligations due within a year. Key investors look for companies with fewer liabilities than assets. Analyzing this type of important information, informs a potential investor that if the company owes more money than they are bringing in that this company is in financial trouble. Assessing the liabilities of the balance sheet, for the same time period, it is also consistent with the assets. The cash flow demonstrates a stable performance in the company’s assets and would be determined that the liabilities of this company are also stable. Equity is equal to assets minus liabilities, and it represents how much the company’s shareholders actually have a claim to. Investors customarily observe closely
Many researchers have made efforts to study retail change, based on the assumption that they can gain an...
Mayer, M. L. (1989). 1949-1989: retail reflections. Journal of Retailing, V65 n3, p 396. JAI press, Inc.
The statement displays the relationship of the net income to the changes in the cash balances. It is important to understand that cash balances can wane despite an increase in net revenue (Horngren, 2014, p. 674). The statement also aids in the evaluation of management’s use of cash and management’s generation, defining a company’s capability to pay dividends and interest to pay debts when the time comes to pay them, and forecasting upcoming cash flows (Horngren, 2014, p. 674). The balance sheet displays the status of an entity at a specific time. Contrary to the balance sheet, income statements and cash flows cover periods over time.
Financial statements play a significant role in providing insight into Landry’s Restaurants financial condition. Is the liability or cost high and can one see continued improvement in revenues each year are questions answered when analyzing financial statements. An investor can use financial statements in making a decision to invest in a company. By examining the different financial statements, one can identify Landry’s Restaurants has grown over the past five years. Comparing assets, liabilities and owner equity, one is able to determine Landry’s Restaurants is making a profit.
For a retail manager determining location for an organisation, it must be decided whether the business holds ‘’competitive advantage’’ and whether there is opportunity to outperform competitors and capture a share an existing market. (Kim, W. C., Mauborgne. R. 2005) If a retail manager was to determine that little to no existing competitors in a location it could prove massively influential on where to base a business. (Kim, W. C., Mauborgne, R. 2005)
A consolidated financial statement can be defined as the financial statements of a parent and its subsidiaries combined to form a single economic entity (AASB 10, 2011). The entity, which acquires the other entity, is known as the parent and the entity, which has been acquired, is known as the subsidiary. Consolidation financial reports arise when one entity purchases another entity, to then form a group.
The main goal when defining the financial perspective was to answer the following question “If we succeed, how will we look to our stakeholders” (BSI 2009, ¶5). Scents & Things is a new business in the area and will need to look closely at the competition in order to increase the company’s market share. The company may have to initiate a way to find a competitor since the original location is in the heart of a small town. Additional areas the company needs to look at is customer satisfaction, asset utilization, Increase net revenues, Minimizing store production costs, Decrease in unit cost, Increase operating cash flow over prior year , And ultimately to achieve financial sustainability. The way to measure the above objectives is to monitor revenue growth, Operating costs, Earnings per share, Return on capital, Return on interest, and number of returned items in a way that will help management to direct the c...
Even the slowdown in current global economies could not bring retail sector down as retailers keep seeking for opportunities overseas to avoid challenging economic condition, which make this sector becoming more globalised and competitive. As an heir of an industrial components retailer, I also believe there are bountiful opportunities to grow in this emerging industry. But without deeply and truly understanding in every aspect of retailing, one could not survive in the battle. For this reason, I would like to pursue my education further by studying Master in retail management to obtain knowledge in retailing and hopefully become successful in the field.
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
The statement of profit or loss is also known as income statement and it’s equation is revenue minus expenses equals profit or loss. The statement of profit or loss summarize the revenues and expenses of a business and also shown the ability of a business to generated business. The total profit or loss that generated in an organization during an accounting period can be seen through the income statement. For example, if the expenses of the company are higher than revenues, the company will get a loss in the business. However, the company will generate a profit when the revenues are greater than the
Financial statements provide an overview of a business' financial condition in both short and long term. They help in understanding the past performance of the company and making future predictions about the company. It thus helps us to look beyond the profit figures.
Balance sheets are very important for parties like suppliers, investors, competitors, customers, etc. to know the company’s position, company’s strength and company’s weaknesses. Balance sheets helps to ascertain the amount of capital employed in the business so that we can further calculate different types of ratios. Some important objectives of preparing balance sheets are:
Income statement-: Income statement is the financial statement that measures a company 's financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.