Don Hofstrand: The Most Important Financial Report

The profitability ration in a financial analysis is the ability of the organization to generate a profit. This ratio looks at areas such as net income, revenue, gross profit, earnings before taxes and interest and operating profit to name a few. Profitability shows the bottom line numbers for a company and is the goal that most organizations strive for. Ratios examined were gross profit margin and net profit margins

When you’re looking at the income statement, you can get information about profitability for a particular period. This is also called the profit and loss statement. The income statement is composed of both income and expenses. This statement can be used to deduct expenses from income and report either a net profit or net loss for that period. This statement will deduct all expenses from income and then report your net profit or net loss for that period. This will allow the business owner to determine if the business is bringing in a good amount of revenue to make a profit. The cash flow statement shows the movement in cash and balance over period. The cash flow can vary depending on the operating activities, investing and financing activities. This statement provides one business owner with insight to the company’s liquidity which is vital to the growth of the business. Reinvesting in business is very important, looking at the statement of retained earnings will tell a business owner how much were reinvested in the company. After profitable period, every big business has to give some of its profits to stockholders, and keep the rest amount as retained earnings. Out of all statements, retaining statement is important to companies that sells stocks to the public. This statement can also provide you with assets and liabilities information. These informations can be used to assess the financial health of your business. The results of a balance sheet will help the business owners to show the risk of liquidity and credit. Looking at these information you can measure trends and relationships to show where in the areas you can improve. These can also be compared to similar companies to show how the business measures up to leading competitors (Ali, 2010). In summary, the financial statements can provide a business owner

To consider this I will be looking at the Income Statement. If the company’s revenue exceeds its expenses it will report net income or will report a net loss. This will report on the success or failure of the company’s operation by reporting its revenue and expenses.

1. Profitability and decision analyses: Relevant revenues, costs, profit margins, cash flows, and/or net income are appropriately calculated and interpreted.

Profitability ratios provide insight into how much profit a company generates with the money that shareholders have invested in the company. Profit margin, return on equity, and earnings per share are all forms of profitability ratios (Stocks Simplified, 2011).

In order to assess whether the accounting profit is a measure of the true profit it must first

This income statement tells how much money a company has brought in (its revenues) how much it has spent (its expenses) and the difference between the two (its profit). The income statement show’s a company’s revenues and expenses over a specific time frame. This statement

Profitability ratios are measurements used by companies in order to measure a business ability to make earnings relative to sales assets and equity. These ratios assess the ability of a company to generate earnings, profits and cash flows relative to some metric, often the amount of money that a company has invested. They emphasize how effectively the profitability of a company is being handled.

The “financial statements are formal reports providing information on a company's financial position, cash inflows and outflows, and the results of operations” (Hermanson, p.22). There are four main components that make up a financial statement. The four parts are, balance sheet, income statements, cash flow and, statement of owner’s equity. The balance sheets role is to define the company’s assets liabilities and revenue of the business. The income statement shows the income within the company. Cash flow reviews the position of the company by cash payments and receipts. Lastly, the statement of owner’s equity shows the amount of earnings, stock and other capitals of people in the company. (Hermanson, p.34-35).

Every company for example Wal-Mart worries about its profitability. One of the most regularly utilized implements of financial ratio analysis is profitability ratios which are utilized to figure out the bottom line of the company. Profitability measures are vital to corporation managers and owners alike. If a small industry has outside stockholders who have put their own money into the corporation, the primary owner surely has to show profitability to those equity stockholders. (Blanchard, 2008)

The first of the financial statements is the income statement. The income statement states the revenues and expenses in an understandable way that shows a clear picture of net income or net loss for the

Profitability (performance) ratios are used to assess a company’s ability to create equity as compared to its debt and other appropriate expenses created during a particular time frame. A favorable analysis of profitability ratios will reveal that a company’s value is higher than a competitor’s value.

Profitability ratios refer to the relative measure to what an actual created profit. Through these ratios the company is allowed to see how profitable the company. In addition it can serve as an examination of the overall performance of the company’s operations and how do these compare to past performances or other companies. The ratios in which accounting measures the profitability of a company are Profit Margin, Price over Earnings, Return on Equity and Return on

Profitability is the main objective of all businesses. Business will not be able to survive if there is no state of providing a financial gain. Hence, it is especially significant to know and calculate the present and past profitability and forecasting future profitability. Income and expense are being used in computing in computing profitability. Income is what was being produced from the activities of the business. For instance, if raw materials and end products are produced and sold, income is achieved. On the other hand, expenses are the expenditure of assets accumulated or depleted by the activities of the business. For instance, seed corn is an expense of a farm business since it