Free «Financial Statements and Capital Budgeting» Essay Sample


Balance sheet, statement of revenue and expense, and statement of cash flows are vital records in records financial analysis of any business. Balance sheet gives the financial position of business at a definite time. It also shows the assets and liabilities of business. The statement of revenue and expense shows revenue, cost of sales and expenses incurred by the business in its transactions. On the other hand, cash flow statement gives a picture of different cash flows of business.

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Benefit From the Information Obtained

The information obtained from the balance sheet will be vital in determining my current ratio. This is given by dividing current assets by current liabilities. This helps the business determine if the funds are used effectively. It will also help my business to determine its acid ratio test or the quick ratio of the business. This is the ratio of current assets (less inventory) to current liabilities of the business. Moreover, balance sheet analysis helps in determining the working capital and business leverage, which shows how it finances its operations.

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In the business, the statement of revenue shows the accruals realized in the future. It also shows if the prices or volumes traded will be able to give expected profits. In addition, information from the statement of revenue gives the cost of operations. This is significant in determining the unit price of products as well as the volume traded in the market.

The information obtained from analysis of the statement of cash flow helps in determining the source of finances used in running the business. This could be from internally generated funds or borrowed externally. This will be of assistance in determining liquidity position of my business at any point.

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Capital Expenditure Budget

This is the money a business spends upgrading or purchasing fixed assets for the future benefit. In undertaking an expansion of a retail pharmacy in hospital, an accountant and a human resource manager would be helpful to my team.

The human resource manager will be of benefit in deciding whether to employ additional staff or to use the available employees in running the new pharmacy. This is because the human resource manager is in charge of employee recruitment and bargain in the business (Dave, 1994).

On the other hand, the accountant helps in determining the affordable cost of further capital expansion. It depends on the financial position of the hospital and the total cost of setting up an additional pharmacy within it. 

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