Submitted by: Lataikeii Evans
Date: April 8, 2011
Arbitrating a company’s monetary physical stability inculpate their financial statements (income statements, balance sheets, and statement of cash flow). These statements must follow the GAAP standards. Sidewise from the statements that are involved in balancing a company or in my case comparing the financial stability of the two successful companies’ three components are involved. The profitability, liquidity, and solvency are the three factors or components used in the analytical process of determining the success or nonsuccesses of a company. Understanding of the valuable components of accounting
One having an intuitive understanding of the terms makes for a smoother transaction as far as performing an analysis of the economic status of a company. The component profitability that term is used to ventilate the performance of a company over a specified time period; solvency is a term used to accredit a company’s ability to whether or not long-term financial obligations will be met as well as invest in future developments; and the last component liquidity is a term that is used that by description means a company’s capability in paying on short-term debts at the time in which they are due: by requisite deadlines. Tools used to support the components
Though solvency, profitability, and liquidity provide a useful way of measuring the status of a company’s finances the ratios provide a more thorough, yet a quick view of the where the company stands financial. With the ratios you are able to get a visual of how well off a company is or how far off from success it is going. In order to maneuver through the many functions of accounting and the components the tools used include vertical analysis, horizontal analysis, and ratio analysis. Vertical analysis according to (Investopedia ULC, 2011) is a “method of financial...