The Main Accounting Principles - Essay Example

The balance sheet is very important to them because they can use that information to perform ratio analysis such as the current ratio and debt ratio which determine whether a company can pay off its short and long-term debt. Suppliers use financial statements to determine if they can provide the customer with a credit line.

The risk of security should be evaluated in isolation due to the fact that different companies have different types of risk depending on the industry, nature of the business, geographic location among other factors. For instance, the risks associated with natural disasters are higher in Florida due to the fact that this region has a high incidence of hurricanes. Businesses located in this state must prepare themselves to deal with operation shutdowns when hurricanes hit. There are other risk factors that different businesses have that affect the risk profile of a corporation. Companies in the airline industry have to take measures to lower the risk of gasoline purchases due to the fact that the price of petroleum is high volatile. Fuel cost is the highest cost for companies in the airline industry. Managers can lower fix their prices by buying future contracts.