Fundamentals of Financial Management, Third Edition

SUMMARY

Financial statements show, among other things, the various outflows and inflows of cash and profits as also the financial position of a firm. This is why they are very important for financial analysis and planning. The income statement is one such statement, which shows the firm’s income and expense and the resulting profits during a particular fiscal period. Various measures of profit, such as gross profit, operating profit, earning before taxes and the net income after taxes are evident from the income statement.

The other important financial statement is the balance sheet, which shows the firm’s various liabilities and assets as on a particular date, generally the closing day of the fiscal period. However, the balance sheet does not ...