ACCT 370 Discussion 1

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Liberty University *

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Finance

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Feb 20, 2024

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Discussion 1: Importance of Financial Statement Analysis Create a discussion thread that addresses the following areas: What is financial statement analysis? Why is financial statement analysis an important area of study? What is learned from the process of financial statement analysis? Discuss the Biblical implications of reliable and representationally faithful financial statements. According to Will Kenton (2022), financial statement analysis is “the process of analyzing a company’s financial statements for decision-making purposes. External stakeholders use it to understand the overall health of an organization and to evaluate financial performance and business value. Internal constituents use it as a monitoring tool for managing the finances. According to our text book, external stakeholders include shareholders and investors, customers, lenders and suppliers, and government and regulatory agencies. Internal stakeholders include both managers and employees. (Revsine, et al, 2021, p. 4). Without financial statement analysis, internal and external stakeholders would be left to guess at the health of the organization when making critical decisions about overall business performance and the organization’s value . The basis for this analysis is the balance sheet, income statement, and cash flow statement. The balance sheet provides a summary of assets, liabilities, and owners’ equity. The income statement (also known as profit and loss statement) summarizes revenue, expenses, profit, and income, for a stated period of time that provides insights into trends and activities for the organization. The cash flow statement shows work of the company’s cash during a specific period of time for three categories of activity: operating, investing, and financing. (Keele University, 2022). The evaluation process allows managers and employees to identify where changes may be required to course-correct unfavorable trends or where we may want to continue actions that are producing favorable results. As external stakeholders we can determine if a company can cover its debts or if a company’s stock price is under or overvalued. The information also allows us to evaluate if the company’s resources are being managed well. From a biblical perspective, financial accounting is supported in a number of ways. First, we are all called to be stewards of the resources that God has entrusted to us. 1 Corinthians 4:2 states, “ Moreover, it is required of stewards that they be found faithful ” ( ESV, 2016). Second, we are given examples of planning and preparing for future costs and decision making in Luke 14:28, “ For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? ” (ESV, 2016). Another example of ethical accounting can be found in Proverbs 11:1, “ A false balance is an abomination to the Lord, but a just weight is his delight ” (ESV, 2016). By providing ethically sound, controlled financial statements, we can account for our management of resources, provide insights in the health of the organization, and plan for the future.
REFERENCES The Holy Bible, English Standard Version. (2016). Bible Gateway, by Crossway Bibles. Keele University. (2022, July 19). Why is Financial Statement Analysis Important? Retrieved from https://online.keele.ac.uk/why-is-financial-statement-analysis-important/ . Kenton, Will. (2022, March 6). Financial Statement Analysis: How It’s Done, by Statement Type . Retrieved from https://www.investopedia.com/terms/f/financial-statement-analysis.asp Revsine, L., Collins, D. W., Johnson, W. B., Soffer, L. C., & Mittelstaedt, H. F. (2021). In Financial Reporting & Analysis (Eighth Edition). McGraw-Hill Education. Response 1 Hi, Amy. Thank you for sharing your thoughts on our first discussion thread. I’ve enjoyed reading your submission. One of items that stood out to me was your inclusion of using the financial statement analysis as an “early warning system for potential future problems”. If we are not watchful, we can become trapped in our calamity of our own making. Perhaps we took on too much debt or we are not controlling our expenses if we are not watchful, we may not see it until it is too late. In Psalm 35:8, David talks about falling into one’s own snare: “Let destruction come upon him when he does not know it! And let the net that he hid ensnare him; let him fall into it —to his destruction!” ( ESV, 2016). By using the financial statements as warning systems, we can identify the “snares” that we may not even be aware of and devise a way out. The financial statements can be a kind of watch tower for destruction that is waiting for us. I hope you have a wonderful weekend and continue to do well in the course. Tracy REFERENCE The Holy Bible, English Standard Version. (2016). Bible Gateway, by Crossway Bibles. Response 2 Hello, Abby. Thank you so much for sharing your discussion post on the importance of financial statement analysis. Your section on the detrimental impacts of not paying attention to the inflows and outflows is so true. The company that I work for, just went through a major restructuring laying off almost 2,000 employees. (Today was my last day at work.) This restructuring was 100% due to lack of controls and awareness on expenses. The company was a startup that experienced tremendous growth between
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