Asset Investment

The main goal of any company, whether it be large or small is to maximize profits and reduce costs at the same time. Many users of financial statements (investors, auditors, managers and owners etc.) can determine the standing of a company by studying their balance sheet, income statement and statement of cash flows and from there, analyze how the company uses their retained earnings. “In most cases, companies retain their earnings in order to invest them into areas where the company can create growth opportunities, such as buying new machinery or spending the money on more research and development.” (Investopedia, 2014) Along with buying new machinery or spending the money on R&D, companies may decide to invest their money in asset investments such as held-to-maturity securities, trade securities and available for sale securities. It is very important to first know where asset investments can be found on financial statements and secondly understand what these types of asset investments are and how they are used in the business world.

Three of the most important financial statements to study to find out how a company is using their retained earnings are the balance sheet, the income statement and the statement of cash flows. These statements paint a picture of the company’s position and what their goals are; both short and long term. “The users of financial statements use financial statements for a large variety of business purposes and their ability to understand and analyze financial statements helps them to succeed in the business world.” (http://finance.mapsofworld.com, 2014)By studying and comprehending these numbers and ratios, a user can also determine the health of the company and whether or not the company is meeting their goals. They can analyze one company and then compare financial ratios of similar companies competing in the same market. After a company is analyzed and compared to their competition, users of the statements can then determine...