Financial Statement Analysis..DOCVIP

Financial Statement Analysis For Small Businesses A Resource Guide Provided By Virginia Small Business Development Center Network (Revised for the VSBDC by Henry Reeves 3/22/2011)  Contents Topic Page Introduction 3 Importance of Financial Statements 4 Collecting and Managing Data 5 The Income Statement 7 The Balance Sheet 9 Reconciliation of Equity or Statement of Changes in Stockholder Equity 12 Statement of Cash Flows 12 Notes to Financial Statements 13 Financial Ratios – Explanation 13 Key Terms and Concepts 20 Financial Statements as a Management Tool 24 Three Case Studies 32 Figure 1: Summary Table of Financial Ratios 36 Figure 2: K-L Fashions, Inc. Financial Statements 38 Figure 3: Breakeven Analysis 46 Figure 4. - Sample Cash Flow Statement (without numbers): 47 Conclusion 48 Sources of Financial Analysis Information 49 Introduction Financial statements provide small business owners with the basic tools for determining how well their operations perform at all times. Many entrepreneurs do not realize that financial statements have a value that goes beyond their use as supporting documents to loan applications and tax returns. These statements are concise reports designed to summarize financial activities for specific periods. Owners and managers can use financial statement analysis to evaluate the past and current financial condition of their business, diagnose any existing financial problems, and forecast future trends in the firm’s financial position. Evaluation pinpoints, in financial terms, where the firm has been and where it is today. Diagnosis determines the causes of the financial problems that statement analysis uncovers and suggests solutions for them. Forecasts are valuable in statement analysis for two reasons: You can prepare forecasts that assume that the basic financial facts about a company will remain the same for a specified period in the future.