Capacity to Obtain Finances through Stocks - Essay Example

Capacity to obtain finances through stocks – By selling shares to people outside it, a limited company can easily acquire the necessary funds for expansion and growth. Annual disclosure of financial activities – Limited companies are required by law to submit annual accounting and financial reports to the government. This is to regulate its fiduciary activities and to protect the interests of its current and prospective investors (Limited Company? 2006).   In the United States, corporations are required to submit their financial reports to the United States Securities and Exchange Commission for the regulation of their financial activities (The Investor’s Advocate 2006). In terms of financial reporting, the Federal Accounting Standards Advisory Board is tasked to promulgate accounting standards in the federal government, whereas the Financial Accounting Standards Board makes sure that the financial accounting and reporting standards are enforced.  2.  A Cash Flow Statement shows the cash amounts and equivalents flowing in and out of a company. It gives information to businessmen and investors regarding the current status of company operations, where the company is acquiring money, and its spending habits (Heakel 2004).    As seen in the examples above, the direct method shows the primary sources of gross cash receipts and gross cash payments, whereas, in the indirect method, only the net income of the period is written down. The latter also adjusts net income for revenue items that did not give cash or expenses that do not use cash (Nurre n.d.). 3. Financial ratios are figures derived from the computations from the information given in a company’s financial statements that can show the current status of a company. Through mathematics, we can objectively interpret these figures. For example, if the current ratio is above 1, it implies that the company is mathematically capable of paying its financial obligations (Current Ratio n.d.). With trend analysis, we can use graphs and patterns that we form out of the graph as forecasting tools to predict future prices and business status (Trend Analysis n.d.).      The efficiency ratio is the most important financial ratio category since it explains the effective and efficient use of assets to reach optimal productivity. The profitability of a company will be enhanced if the company assets are utilized to their optimal level. Also, unwanted debts will be reduced if efficiency, as reflected by financial ratios, is realized in a company. Read More