ENT 650 Week 3 Importance of Financial Statements

The importance of financial statements to entrepreneurs.

As I embark on reading Entrepreneurial Finance by Steven Rogers,  I realize the importance of financial statements to an entrepreneur.  Financial statements are a picture of the company in its present state of financial health that can be used to project the future of the business.  

Each statement will give a different snapshot.  The Income statement is sometimes referred to as the profit and loss statement.  It shows the reader if the company has the ability to earn a profit.  It is an organized summary of the company income (sales) and expenses.  The income statement can also be used to analyze sales trends over time.  The income statement is also used to calculate a company’s cash flow(Rogers, 2020).  After all, we all want to know if we are making money. 

Balance sheets show a great representation of a company’s assets, liabilities, and stockholders equity at a specific time.  These sheets are used by lenders to determine a company’s creditworthiness.  The assets and liabilities can be separated into long-term and short-term categories.  Short-term assets can be converted into cash within one year.  Long-term assets can be depreciated over time.  Liabilities are the debt that a company owes.  Short-term debt will be repaid in one year.  Stockholders equity is the difference between what the company owns (Assets) and what the company owes (liabilities).  

While it is not necessary as an entrepreneur to be able to create these, it is necessary to understand them.  After all, behind every successful business is a great accountant.

References  

Rogers, S. (2020). Entrepreneurial finance: Finance and business strategies for the serious entrepreneur. Place of publication not identified: Mcgraw-Hill Education.

https://www.investopedia.com/ask/answers/09/does-balance-sheet-always-balance.asp

https://www.accountingtools.com/articles/what-is-the-purpose-of-financial-statements.html

7 thoughts on “ENT 650 Week 3 Importance of Financial Statements

  1. Tina,
    Excellent post on our assigned reading! Financial statements are important for everyone involved in a business. While we as entrepreneurs may not create the financial statements, we must know how to interpret the financial statements to understand how our business is doing and what changes if any need to be made. Entrepreneurs should be able to show their business financial statements that demonstrate the wellbeing of the business.

    Like

    1. Audrey,
      I have been really digging into the analysis of the financial statements for this class and I can see great value to checking them very often. I did not realize that so many companies have been a victim of fraud as a result of not being on top of the financial statements. Thank you for your comment.
      Tina

      Like

  2. Tina, Understanding the relationship between financials reports has been challenging for me. I can certainly appreciate the need for a good accountant. However, it is important also to be able to dial into your business on a daily basis by understanding these reports. This will allow for small adjustments to be made so the the business can be guided in the right direction. Having to make major changes when meeting with your accountant once per year would be difficult.
    Best regards,
    Mike Weimar

    Liked by 1 person

  3. I enjoyed reading your post! I agree that entrepreneurs should have an understanding of financial statements. Even if an entrepreneur does not prepare the financial statements for the organization, the entrepreneur is ultimately responsibility and has to sign off on any financial documents that are submitted on behalf of the company, such as tax documents. Great post, as always!

    Liked by 1 person

    1. This class has really made me aware of paying attention to detail. I am currently working through the financial statements and the detail is needed for a clear picture. I did not realize all that went into the statements but I can see the value in the finished product and the need to do them often.
      Tina

      Like

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