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Essay about Purposes of Measuring and Reporting Systems for Companies

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1. There are three key measuring and reporting systems for any company. Describe each of these and their purpose:
Cash Flow Statement:
A cash flow statement is a month by month statement of anticipated cash in against cash out. They assess the amount, timing and predictability of cash inflows and cash outflows and are used as the basis for budgeting and business planning. It provides a sharper picture of a company's ability to pay creditors and finance growth. Each section of the cash flow statement will give insight into your business activities and where your cash came from or where it went to. (Lutt, 2012)
The purpose of the cash flow statement or statement of cash flows is to provide information about a company's gross receipts and
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• A statement showing how the Net assets have been financed.
An asset is any right or thing that is owned by a business eg: Land, equipment, etc. The purpose of the balance sheet is to give users an idea of the company’s financial position along with displaying what the company owns and owes. The balance sheet along with the income and cash flow statements, is an important tool for investors to gain insight into a company and its operations.
What is meant by Liquidity Ratio?
Liquidity ratios are the ratios that measure the ability of a company to meet its short term debt obligations. These ratios measure the ability of a company to pay off its short-term liabilities when they fall due. Liquidity Ratio is calculated by dividing cash and other liquid assets by the short term borrowings and current liabilities. They show the number of times the short term debt obligations are covered by the cash and liquid assets. If the value is greater than 1, it means the short term obligations are fully covered.
So, the higher the liquidity ratios are, the higher the margin of safety that the company posses to meet its current liabilities. Liquidity ratios greater than 1 indicate that the company is in good financial health and it is less likely to fall into financial difficulties.

2. Explain the purpose and practice of Budgeting.
A Budget is usually a detailed analysis of how a company expects to spend
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