Financial Statements

SUBJECT: Executive Summary - Interpreting Financial Statements

Management Point of View:

Financial Statements are the key to understanding the financial positioning of a particular firm. The Balance Sheet, Income Statement and Cash flow helps managers know how they are investing, where is money coming from and how is the money spent. Sometime the figures in the financial statement are not enough to determine meaning information about the company. The use of Ratios along with financial statements helps managers analysis data because they are summarized data that are easy to use, understand and interpret. Financial statements and ratios help managers and independent auditors to understand their business operations and discover any irregularities regarding their business. One goal a manager has is to maximize profitability for the shareholders. By understanding and interpreting the financial statement and ratios, they have better chance at maximizing profitability for the company. Managers can also compare and analyzes their competitors business through financial statements.

Investors Point of View:

Financial statement, ratios and disclosures provide investors and lender important information regarding a particular company because they are not privileged to have access to the company’s internal accounts. Investors and lender use these financial statements and ratios to make decisions whether to invest or lend capital to a particular business. One of the most important measures of a company success is profitability but investors and lender also analyze a company’s liquidity and solvency prior to making an investment decision.

Interpreting Financial Ratios for Coca-Cola and PepsiCo

Current Ratio:

The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. This ratio is important to management as it...