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Financial Analysis Principles

The basic three financial reports that are part of financial accounting are the Balance Sheet, Income Statement, and Statement of Cash Flows. According to an essay written by Michael Dennis and published online on the Encyclopedia of Credit website, a Balance Sheet presents information about a company's assets, liabilities, and equity. A Balance Sheet will normally divide assets into current assets, and noncurrent or fixed assets. Current assets are those assets which will be converted to cash within the next 12 months. Fixed and non-current assets are not ordinarily sold by a business entity. Liabilities are debts. On the Balance Sheet, debts are subdivided into current liabilities and non-current liabilities. Current liabilities or obligations or debts due within a year. Non-current liabilities are those obligations that will not come to in coming year. The third part of a Balance Sheet is equity. Equity can be thought of as the residual amount on the Balance Sheet. It represents assets minus liabilities. Therefore, equity can be either negative or positive. Equity would be negative when liabilities exceed assets, and positive when asked the value of assets exceeds liabilities (Dennis).

According to another essay by Michael Dennis published by the Encyclopedia of Credit, and Income Statement shows if a company has made or lost money in a specific period of time. The report describes in the Company's ability to generate a profit on sales. The time period covered by an Income Statement is typically either a calendar quarter or a fiscal year (Dennis).

According to a third essay published online on Encyclopedia of credit written by Michael Dennis, a Statement of Cash Flows reports that companies cash inflows and cash outflows in areas classified as operating activities, financing activities, and investing activities. In contrast to the balance sheet which typically provides information using the accrual method of...

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Financial Analysis Principles. (2009, May 29). In Retrieved 15:55, October 21, 2014, from