Question

Finances and lack of money are the main reasons that all businesses fail. Suppose your roommate, a Spanish major, tells you they have just inherited the family business from their grandparents. They know you are a business student who is studying entrepreneurship. Describe and explain in 4 separate sentences how the following 4 financial analysis tools can help the small business owner avoid going out of business due to lack of money.

1. Income statement - what is it and what information does it provide to the business owner?
2. Balance sheet - what is it and what information does it provide to the business owner?
3. Statement of cash flows - what is it and what information does it provide to the business owner?
4. Ratio analysis - what is it and what information does it provide to the business owner?

Answer 1

See the explanation below.

Step-by-step explanation:

1. Income statement - what is it and what information does it provide to the business owner?

An income statement can be described as a financial statement that provides information about how profitable a business was during a particular reporting period.

An income statement provides to the business owner information about revenue, expenses, income and losses of his/her business.

2. Balance sheet - what is it and what information does it provide to the business owner?

A balance sheet can be described as a financial statement shows the level of financial position of a company at a specific point in time.

A balance sheet provides to the business owner information about assets, liabilities and owner's equity of his/her business at a specific point in time.

3. Statement of cash flows - what is it and what information does it provide to the business owner?

A statement of cash flows can be described as a financial statement that provides the summary of how much cash and cash equivalents enter and leave a business.

A statement of cash flows provides to the business owner information about cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities of his/her business.

4. Ratio analysis - what is it and what information does it provide to the business owner?

A ratio analysis or financial ratio analysis can be described as a relative magnitude of two numerical values that selected the financial statements of a business.

A ratio analysis provides to the business owner information that enables him to gain insight into the liquidity, operational efficiency, and profitability of his/her business.