I work at a company that I help prepare 30 financial statements each month. Our investors use these statements to ensure that we are taking care of their investments. Reading these documents closely is one of the best ways for investors to get a better grip on what's going on with the company to which they've entrusted their money. Ignoring these reports is akin to driving down the freeway blindfolded (Krantz, 2012). In my position as a Director, I use financial statements to keep my eye on my complete department. I have the largest part of the expense portion of our budget, and I must keep it balanced. Without the check and balance that the financial statements provide, my job would be very hard if not impossible. There isn't just one best method for evaluating business performance. Every business may differ slightly in operation, environment and methodology, which leaves many trial and error opportunities. Financial statement analysis provides a primary foundation for evaluating business performance and …show more content…
Details such as income, existing debt obligations, expenses, salaries, profit and cash flow all factor into the overall business financial profile. Creditors use financial statements to determine if the business represents a sound credit risk, as well as its ability to repay debt as agreed (O'Kelley, n.d.). Creditors use information on financial statements to create ratios; these formulas provides information on how well the company is managed. One of these ratios is the debt-to-equity ratio. The debt-to-equity ratio is used to determine the relative proportion of shareholders' equity and debt used to finance a company's assets. This ratio gives creditors an understanding of how the business uses debt and its ability to repay additional debt. The formula for determining debt-to-equity is total business liabilities divided by shareholder's equity(O'Kelley,