Please response to the following discussion post from a classmate. Please provid

Question

Please response to the following discussion post from a classmate. Please provide support and reference. Thank you for your time, and understanding!

I can say that I have never really looked into financial statements or anything of the sort until taking this class. I will rely on what I have read and researched. There were a lot of topics covered in our readings, power points and videos. What I have taken away is that there are different financial statements for saying or perceiving to say something about a company. I looked at American Express financial statements from Yahoo Finance.

I first looked at their Financials to see how our readings matched up to what was being shown. The balance sheet for AMEX was for the last 4 year, it showed that there was a gain and loss in total assets the last 4 years. Despite this up and down of total assets, the total liabilities have always been lower. This is good, but you can dig deeper into the financials. Next I looked at the income statement, for the year of 2017 AMEX made about 2.5 million less than the previous 3 years. Looking only at the balance sheet, it wasn’t as noticeable as it was on the income statement.

Lastly I looked at the statement of cash flow, which is supposed to provide us with a summary of how the company used cash over a specified time (Ross, Westerfield, & Jordan, 2013). When I went through the cash flow for AMEX, despite what the income statement said it had a cash flow of 3 times the previous 3 years. So I can see how different statements are confusing. What one statement says, isn’t necessarily exactly what the company is doing with their financials. I am still a little confused on how that makes sense, I hope as we progress in the course I can have that magic light switch turn on.

I did a quick peep into the analysis that was done by AMEX for growth and long-term planning as discussed in chapter 4. As far as I can tell AMEX is surpassing expected earnings estimates, growth and all other categories of analysis.

References:

Ross, S. A., Westerfield, R., & Jordan, B. D. (2013). Fundamentals of corporate finance. New York: McGraw-Hill/Irwin.

Explanation / Answer

Financial statements present a snapshot of the financial position of the company. The financial statements are basically presented in 3 forms- The income statement, balance sheet and statement of cash flows. The income statement shows a gain or loss on the business operations as well as other incomes and losses. The balance sheet presents a snapshot of assets and liabilities on a particular date and the cash flow statement shows the cash inflows and outflows into the business.

As per the post the total assets have been fluctuating. However, this does not indicate gain or loss. The income statement shows a decrease in profits which are actually accounting profits. So this indicates falling performance of the company. The cash flows have increased which shows that the company has been able to generate more cash than last year which does not mean more profits. Hence all the financial statements show a different angle of the business.

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