3 Crucial Stages To Prepare A Financial Statement Analysis
As a student to finance, you will be required to prepare an accurate financial statement which will be useful for your career ahead. But the process of preparing a financial statement analysis assignment can be quite tricky. Hence, they must follow the steps to prepare this complex document.
The financial statement is the record of an organisation’s financial activity. The main elements of a financial statement are the balance sheet, the income statement, and the cash flow statement. Now let’s elaborate on the steps to prepare the statement which the experts on financial statement assignment help diligently follow.
Creating a balance sheet
The balance sheet is prepared following a basic accounting equation, which is total asset= liabilities +shareholders’ equity. Rearranging the equation, you can find that equity is equal to assets minus liabilities. The balance sheet simply represents this relationship. As per the experts on financial statement analysis assignment help, all liabilities and assets are added up on the balance sheet. Then liabilities are subtracted from assets to derive a figure for shareholder’s equity.
Balance sheets may be put together using accounting software. Or, you can simply prepare a spreadsheet or written list with two columns that can be used to determine your assets and liabilities by category. You can check out the balance sheet from online resources on financial statement analysis assignment.
Some crucial factors with the balance sheet are as follows.
- Current Assets: Current assets can be easily converted into cash because they come with a lifespan of 12 months or less. These short-term assets include accounts receivable, cash, inventory, and cash equivalents.
- Shareholder equity: Also called as stockholder equity, this element reflects the portion of the company that belongs to its owners.
Preparing the income statement
Net sales will be at the top of this section. Each piece has to be presented with a sequential order. Put the net sales on one line. Below that, put the cost of sales. Then derive the gross profit by subtracting the cost of sales from the net sales.
Keep the operating costs in general category below the gross profit. Then write the operating income that you derived from subtracting the operating costs from the gross profit.
Next, dedicate a line each for the taxes and the interest. You can subtract them separately or together.
These are some of the factors of the income statement.
- Operating Expenses: Operating expenses are costs that organisations must pay in the normal course of business.
- Operating Profit: Operating profits are earned from an organisation’s everyday core business operations. Operating profits also are identified as Earnings Before Interest and Taxes(EBIT).
Managing the cash flow
The cash flow is a crucial number to an organisation because it highlights the actual cash you have on hand. It differs from your income because your income includes non-cash expenses and assets that don’t affect your actual cash balance. However, in order to put together a statement of cash flows, you will first need a thoroughly completed income statement and completed balance sheets from a specific period.
The cash flow statement is categorized into three stages. These stages are-
- Cash flows from operating activities
- Cash flows from investing activities
- Cash flows from financing activities
Presenting an appropriate financial statement analysis would be easier than you think with these steps.