What are the key financial statements and why they are important?

The key financial statements are the income statement, balance sheet, cash flow statement, and statement of shareholders equity. The income statement is what I believe is the most important statement of the group. The firms goal is to make a profit. The income statement quickly tells an investor or manager how much revenue was generated and what the expenses are. Often by reviewing the income statement alone, a manager can find the faults of the operation and work to fix them. The balance sheet is important for investors and managers due to it being a snapshot of the firm's overall health. I say this as one can read the balance sheet and tell if a company in trouble. The income statement may say sales are going great, but the balance sheet will say the company is going to be in trouble by the end of the year when the debt comes due. The balance sheet is also important as a planning tool as it tells the manager how much assets/liabilities the company and much is actually available. The statement of cash flows is often overlooked, and yet it tells a great deal of information about a firms health. The statement shows the cash flow in and out of the firm which is the most important matter for a company. By being able to break down the flows of cash into operating, investing, and financing activities, a firm can identify the weakest link and fix it. The statement of shareholders equity is delivered along with the firms balance sheet. The statements tell investors or managers how the companys equity position has changed and what created the charge. One must know if the increase or decrease in equity was because of net income or something less sustainable such as the issuance of common stock. Again, the statement helps give investors the overall picture of the firm.

What is the purpose of ratio analysis?

The purpose of ratio analysis is to develop an understanding of a firms operations in a manner that can be compared to competitors, previous performance, or current performance. The reason ratio analysis is used compared to raw figures is because no two companies will have the same structure. For example, if an investor wanted to invest in Walmart or Target the investor that goes off raw data may assume that Walmart is a better investment because the company has higher sales. However, target may have lower revenue and still offer a higher return to shareholders due to efficiency. Ratio analysis allows investors to measure performance based on comparable terms. Ratios analysis also allows management to identify weak points in the operation. Ratio analysis generally falls into five main categories, liquidity, solvency, probability, and efficiency.

What is the concept of time value of money?

The concept of time value of money is the core concept in finance which states a dollar today is worth more than a dollar in the future. The concept breaks down as waiting for money in the future entails an opportunity cost of lost interest and therefore any rational person would rather have the money now. TVM concept is used to find the present value, future value, payment, and interest as well as a picture of other financial formulas.

Please i need a feedback on this discussion post above.