Galang, Clinth Patrick L.

BSIS-2A

What four financial statements appear in most annual reports?

BALANCE SHEET

A balance sheet gives a statement of a business’s assets, liabilities and share holders equity
at a specific point in time. They offer a snapshot of what your business owns and what it
owes as well as the amount invested by its owners, reported on a single day. A balance
sheet tells you a business’s worth at a given time, so you can better understand its financial
positions.

INCOME SHEET

The income statement is also known as the statement of operations, profit and loss
statement, and statement of earnings. It is one of a company's main financial statements.
The purpose of the income statement is to report a summary of a company's revenues,
expenses, gains, losses, and the resulting net income that occurred during a year, quarter,
or other period of time.

Cash Flow Statement

The cash flow statement is one of the main financial statements of a business or a nonprofit entity. (It is
also known as the statement of cash flows.) The cash flow statement reports a company's major sources
and uses of cash during the same period of time as the company's income statement. In other words, it
lists the major reasons for the change in a company's cash and cash equivalents reported on the balance
sheets at the beginning and the end of the accounting period.

SHARE HOLDER EQUITY Statement

The equity statement, or statement of retained earnings, explains changes in the amount
of money an organization retains in the business. The statement shows the owners’ or
shareholders’ equity at the beginning of the period, any investments in the business and
the net income for the accounting period. It also lists any dividends the organization paid
to shareholders to arrive at the closing equity figure.
If a firms ROE is low and management wants to improve it, explain how using more
debt might help. Could using too much debt prove detrimental?

If a firm’s ROE is low, management can leverage debt in order to increase theROE. ROE is
defined as net income over common equity. In order to leverage debt acompany decreases
its common equity, so that the liabilities match the company’sassets. Due to the interest on
the debt, the earnings before taxes (EBT) is loweredmaking the net income lower. However,
this lower net income to lower common equityresults in a higher ROE. Company with no
debt

What is “free cash flow” Can a company have a negative free cash dlow and still be
considered successful?

Free cash flow is simply calculated as Cash Flow from Operations minus Capital
Expenditures. Free cash flow states the net cash while net income states the profitability of
the company.

A company with negative cash flow doesn’t signify that it is bad because new companies
usually spend a lot of cash. They do investments getting high rate of return due to which
they run out of cash at hand.