1. CHAPTER OBJECTIVES © SOUTH-WESTERN EDUCATIONAL PUBLISHING FINANCIAL ANALYSIS OF A BUSINESS nDescribe a balance sheet and explain how it can be useful to a business. nPoint out the usefulness of the income statement in making business decisions. nDescribe the importance of cash flow and working capital. nExplain several useful financial ratios. nDescribe how various financial experts can assist business managers. 1616

2. © SOUTH-WESTERN EDUCATIONAL PUBLISHING Manager needs financial data to... nmake day-to-day decisions nreview past results nplan for the future Owner needs financial data to... ndecide whether to adjust ownership investment ndecide whether to continue business operations Supplier needs financial data to... ndecide whether to extend credit ndecide how much credit to extend Lender needs financial data to... ndecide whether to lend a business money ndecide on the terms of a loan to a business USE OF FINANCIAL REPORTS Union needs financial data to... ndetermine fair increases in wages, salaries, and benefits Government needs financial data to... narrive at fair tax rates ndetect fraudulent practices

3. © SOUTH-WESTERN EDUCATIONAL PUBLISHING FINANCIAL STATEMENTS nBalance sheet nAssets nLiabilities nCapital nIncome statement nRevenue nExpenses nProfit or loss

4. © SOUTH-WESTERN EDUCATIONAL PUBLISHING ANALYSIS OF FINANCIAL DATA nCash flow nWorking capital nFinancial ratios

5. © SOUTH-WESTERN EDUCATIONAL PUBLISHING Shortage of Cash Excess of Cash CASH FLOW

6. © SOUTH-WESTERN EDUCATIONAL PUBLISHING SOURCES OF FINANCIAL INFORMATION nAccountants nBankers nConsultants nSmall Business Administration