Financial Statements and Decision Making
Financial statements are financial data documents a company publishes on an annual, biannual, quarterly or monthly basis. These documents include the company’s net worth based on assets and liabilities, as well as the company’s expenses, earnings and operational budget. Budgets are plans for the future. Managers are able to monitor budgets in order to spot variances and make ongoing adjustments to plans. Financial statements such as the profit and loss account and the balance sheet provide information about past performance. One disadvantage of using financial statements for decision making is that the data and figures are based on the market at that given time. Depending on the market, it may change quickly, so executives should not assume that the numbers from a previous financial statement will remain the same or increase.
Cash Flow Statements
In financial accounting, a cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.