It has been yet another interesting week as we learnt some essential concepts of business accounting including the accounting equation, the balance sheet, income statement, cash flow statements, and notes to the financial statements.
From the module, the interrelationship between the essential components of the balance sheet which are assets, liabilities, and shareholders’ equity can be observed and how they support decision making process for various stakeholders of a company such as board members, management team, shareholders, creditors, regulators, and credit rating agencies. I learnt the relationship between the asset of a company and its equity. When the equity of a company increases, the total asset also increases. A company’s total assets equal the sum of total liabilities and the shareholders’ equity. From evaluating the financial statements of some international organizations such as Amazon, Walmart, and McDonald’s, I was able to see how the accounting equation is applied in determining the total assets of a company.
Upon the evaluation of the consolidated income statements of some multinationals, I was able to easily examine their financial performance in comparison with other players in the same industry. It was beneficial to learn how the income statement of a company shows their level of financial performance and how it guides individuals in making sound investment decisions. It was quite interesting for me to reach a good understanding that the revenue is not entirely all there is to check when determining the profitability of a business. I was able to see the other essential elements that show the financial position of a company.
My also studies involved the analysis of cash flow statements of a few international corporations and how the cash flow statement shows the liquidity profile of the business. This aspect of business accounting is so essential as it extensively indicates how well a business can meet its own short-term and long-term financial obligations.
I was able to extensively analyse the balance sheet of a few businesses, I saw how the balance sheet shows what a company owns and owes. I learnt about the different assets of the companies, the profile of their liabilities and their equity positions. I am aware that most corporations raise capital or funding by debt or equity and the balance sheet aggregates the assets, liabilities, and equity which exist in a business as at a specific date.
The notes to the financial statements provide critical information about all the components of the balance sheet, income statement, cash flow statement, and changes to equity, which support the analyses of various organisations’ financial performance.
It has been a fascinating learning experience and I have been able to see the role of management and corporate leadership in determining the financial performance and profitability of everyday businesses. It is also apparent that external factors including environmental, political, and most importantly economic factors shape the profitability, liquidity, and overall financial performance of any business. I look forward to applying the several topics learnt about financial statements analyses in future work engagements by paying attention to the important financial ratios.