Financial Statements

An independent auditor's opinion expressing that a firm's financial statements (balance sheet, income statement, cash flow statement)do not reflect the company's position accurately.

An auditor's opinion expressing certain limitations of an audit.

Forecasting is a projection of the anticipated financial performance of a company. Forecasts typically include a projected income statement, a pro-forma balance sheet and a cash flow statement. In order to arrive at projected figures, extensive research should be done to including statistical information on the competition, product trends and client demographics. This information will help you obtain reasonable estimated sales amounts. You should also get quotes from suppliers and realtors to obtain estimated expense amounts. Projections are not a picture of what you would like to see happen to your company, but carefully calculated, realistic numbers. Speak to your local CPA to assist you in this process.

The consistency criterion states that the accounting procedures used at a given time should conform with the procedures previously used for that activity.
Such consistency allows data of different periods to be compared. This is important for comparative financial statements such as the income sheet, balance sheet and cash flow statement.
If there is a change in the consistency or accounting methods, the financial statements have to be restated for consistency purposes.

The disclosure principle requires that the financial statements inclusive of the income statement, balance sheet and cash flow statements present the most useful material amount of relevant information. Notes may be included to the financial statements for additional disclosure. All information that is necessary in order not to be misleading and for investors to make informed decisions if applicable.

Most businesses operate seasonally. They have busy periods and slow periods. They are cash rich at times and cash poor at other times. A cash flow statement helps determine whether the business will have enough cash to pay bills in the slow periods. It will help management know if and when they may need to look for financing.

The Turnover of Cash Liquidity ratio evaluates the adequate means that a company has to finance sales without struggling to pay for materials or goods that the company is buying. Net sales, divided by working capital = TOC Ratio. (Working capital = current assets, minus current liabilities). The generally accepted standard is 5 or 6 times working capital, but may differ depending on your industry.

The ROE measures the return earned by the owners' (preferred and common stockholders) investment in the business. Net Profit after taxes divided by stockholders Equity = ROE.

This ratio is sometimes called the business' return on investment. It measures the overall effectiveness of management in generating profits with its available assets. Net Profits after taxes, divided by Total Assets = ROA.