The basic financial statements include the balance sheet, the income statement, and the statement of cash flows, all of which are related. For example, the income statement defines net income which goes to build the retained earnings account in the balance sheet. Of course, retained earnings are part of the funding for cash and other assets.
The statement of cash flows collects the various accounts that cause the cash to increase or decrease, with one example being the retained earnings account. An analysis of a growing firm requires insights both into the meaning of each statement as well as their interrelationships.
Select any one financial statement and discuss the following:
- Describe the components of the selected financial statement.
- Explain how a company’s growth is likely to impact this statement.
- Explain how this statement is related to the other two statements.
- Explain how these historical statements can be converted into “Pro Forma” financial statements and how they would be used by the company.
Use examples of specific companies or industries in your response. Write your responses in three to four paragraphs.