8. Trend Ratios, Application of some Financial Ratios and their Interpretation Some of the balance sheet and income statement figures of Sapphire Mfg. CO. for 2016, 2017 and 20181 are as follows. 2017 2018 2016 P40,000 50,000 Quick assets P48,000 P30,000 80,000 50,000 135,000 Current assets 65,000 25,000 40,000 110,000 Investments 160,000 Plants, property and equipment, net Total assets 250,000 265,000 200,000 45,000 50,000 105,000 Current liabilities 50,000 Long Term debt Total stockholders' equity Total liabilities and stockholders' 100,000 40,000 125,000 75,000 125,000 Equity Sales Cost of goods sold Operating expenses (including Depreciation of P10,000) let income 200,000 250,000 265,000 400,000 375,000 500,000 290,000 240,000 255,000 110,000 95,000 50,000 105,000 50,000 130,000 Compute for the trend ratios based on the above given data and give your interpretation of the 2017 and 2018 gures.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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