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