Financial Statements and Their Significance

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What is Financial Statement Analysis?

Many companies and individuals rely on financial statement analysis in their work. It is the procedure of using analytical and financial tools for examination and comparison of financial statements (What is Financial Statement Analysis?). Financial statements are a requirement by law, and interpreting them gives businesses many benefits (The Importance Of Financial Reporting & Analysis: A Complete Guide, 2020).

The task is mainly performed to gather data and make better business decisions. Financial analysis allows interested parties to examine financial statements and see whether a business is worth their investment.

Why is financial statement analysis an important area of study?

Studying financial statements can help share- and stakeholders to make more informed decisions regarding investments and loans (What is Financial Statement Analysis?). Financial statements exist to meet the needs of investors and provide accurate data on the growth and development of the company (Financial Statement Analysis, 2016).

Interpreting the given data correctly is especially important, as without correct understanding it cannot be practically applied. The data provides lending institutions, such as banks, with unbiased information regarding a businesss financial wellbeing. Financial statements also allow the upper management of the company to better perform their governing duties.

What is learned from the process of financial statement analysis?

Financial statement analysis is concerned with such factors as liquidity, activity ratios, leverage, and profitability, delivering nuanced data on many fronts. The process of financial statement analysis allows interested parties to measure the companys likelihood of remaining in business, the managements performance, primary methods of funding (How Financial Statement Analysis Helps Business Grow, 2020). It can also be used to effectively measure the companys ability to generate profits. All of these factors can be further divided into sub-sections and analyzed.

Discuss the Biblical implications of reliable and representationally faithful financial statements.

The bible is largely in favor of reliable and faithful financial statements. As a holy book, much concerned with the teachings of God, the Bible preaches the importance of honesty, virtue, and trust. Many of these values are also applicable to business and financial statements. Proverbs 28:13 states, that Whoever conceals his transgressions will not prosper, but he who confesses and forsakes them will obtain mercy, which directly correlates with openness and reliability in financial statements. In the eyes of the Bible, writing accurate financial statements is crucial to leading a successful business.