Discussion Post: Financial Management
• What are the four statements contained in most annual reports?
The first financial statement is a balance sheet, which summarizes the organization's financial position. A balance sheet provides a list of all the organization's assets, liabilities, and equity owned by stakeholders. The assets listed are either current assets, such as cash and stock inventory, or fixed assets, such as buildings, equipment, and land. Examples of liabilities that an organization may list include taxes and wages. A balance sheet helps evaluate an organization's ability to meet its long-term financial commitments (Felber et al., 2019). The second financial statement is an income statement, and it summarizes the amount of money earned and spent by an organization in a financial year. Earnings are derived from the revenue, such as sales and interests, while money spent is delivered from incurred expenditures such as purchases. The third financial statement is a cash flow statement, and it explains the source of capital and how it was spent in that specific financial year. The fourth financial statement is the equity statement or statement of retained earnings. It indicates shareholders' equity at the beginning of a particular year, investments in the business, and the net income acquired.
• What is free cash flow?
It represents the amount of cash generated by a business after accounting for reinvestment in non-current capital assets by the company. It is calculated by subtracting Capital Expenditures from the Cash from Operations (Ketz, 2016).
• Why is it the most important measure of cash flow?
Free cash flow (FCF) is the most important measure of cash flow since it monitors the amount of cash left over after capital expenditure.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.
References
• Felber, C., Campos, V., & Sanchis, J. R. (2019). The common good balance sheet, an adequate tool to capture non-financials?. Sustainability, 11(14), 3791.
• Ketz, J. E. (2016). Free cash flow and business combinations. The CPA Journal, 86(11), 48-53.