Lending Money to clients

Banks on the other hand, deals with lending money to clients mostly on financial statement loan, asset-based loan, and small business credit scoring loan. Literally, financial statement loans are advanced to clients based on the liquidity, profitability, and solvency ratios appearing on the two component papers which are the balance sheet and the income statement. Based on the same instrumentality, asset-based loans are granted, but, with a security value that is projected on the accounts receivable, inventory, and fixed assets. Credit scoring loans are quite complicated as it requires past records of loans made by the client (Berger & Udell, 2003).

Financial decisions and Corporate valuations

Consequently, financial decisions and corporate valuations in the real world are usually drawn and underpinned by the testimonial figures in a financial statement. This is because the financial statement according to Albrecht et al in 2002 after being prepared by account executives of companies are audited and as found sound will form the usual bundle doled out to bankers, suppliers, and investors to assess the economic strength and weaknesses of a company.

On the other hand, Jamie Pratt in 2003 supposed that a financial report contribute a vital part in speculative ventures, although primarily, the main concern is for stakeholders update on company financials’. For example, companies like Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co, whose managers resolved to increase profit, thus, probably achieving economics of scale. This can be done by encouraging investors for additional capitalization. So, the managers will initiate the writing of a company financial statement to show the current economic status of the company. This financial statement will be made up of four collaborative papers such as balance sheet, income statement, statement of retained earnings, and statement of cash flows (Jamie Pratt, 2003).

Financial Statement 2

According to Kirkegaard this predicament was supported by Professor Robert N. Anthony in 1987 in the Harvard Business Review article which said that in reality, there are no fundamental accounting concepts established to guide the preparation of the commonly used financial statement. This was only in addition to the numberless attempts of experts to come up with a generally acceptable format that could be easily understood by readers of the same. But, it seems that the major barrier towards creation of a commonly acceptable format which is politics always prevailed. This is despite the efforts of the Financial Accounting Standards board to create the groundwork’s (Kirkegaard, 1997). So, in the midst of differences in fundamental accounting standards businesses have to go on and financial statements have to be prepared according to needs and preferences of various entities that could benefit from the financial statement as financial tool (Berger & Udell, 2003).

Financial Statement

Financial Statement

In 1997 Kirkegaard asserted that the absence of fundamental bookkeeping theories makes no one capable of appreciating financial statements. Various financial managers and company executives apparently interpret financial statements according to how they deduce figures that would serve them for making fiscal choices and management. Apparently, the current type of financial statements drawn up by companies turned out to be frustrating. The blame for the shortcoming almost always went back to the bookkeepers who seemed to be out of touch (Kirkegaard, 1997).

Definition 3: Do financial statements help in Financial decisions and corporate valuation

Profitability: is the earning power ability of Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co to generate profits and increase net assets in the future. The companies’ Net income, especially the persistent components of net income was considered as an indication of earning powers.

Solvency: refers to the ability of Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co to meet debts as they come due.

Solvency ratios: refers to the financial ratios designed to measure Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co ability to meet debts as they come due. (The current and quick ratios are the two solvency ratios.)

Definition 2: Do financial statements help in Financial decisions and corporate valuation

Financial performance: refers to the economic success of Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co over five consecutive years.

Financial flexibility: refers to Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co capacity to raise cash through methods other than operations, which could include short- and long term borrowings, issuing equity, or setting assets.

Financial condition: refers to the economic strength of Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co as of 20004 to 2008 periods.

Definition 1: Do financial statements help in Financial decisions and corporate valuation

Definition of Terms

Financial statements: are a summary of the financial condition and performance of Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co, prepared by its management and in some cases reviewed by independent auditors. Their financial statements consist of the income statement, balance sheet, statement of cash flows, statement of stockholders equity, and related footnotes.

Financial ratio analysis: is one of several techniques used to analyze financial statements of Compass Group PLC, Toronto Dominion Bank, Harris Corp, Morgan Stanley, and Boeing Co in an effort to assess earning power, solvency, and earnings persistence. Financial ratio analysis of the content of the banks’ financial statements involves computing and analyzing ratios that use financial statement numbers. These ratios are divided into three categories: Profitability, solvency, and liquidity ratios. The DuPont Model was used as the take off point in showing the differences in return on equity and return on assets across time across companies.

Theoretical Last: Do financial statements help in Financial decisions and corporate valuation

Apparently, an asset puts money into the company coffers, while liabilities draw off and drain the latter. Therefore, in cases of attempts to shift liabilities to assets, just like what the account managers did to World Com, indeed reflecting an increase revenue and subsequent decrease in expenses, as well as increase in assets, but, the cash was streaming out of company coffers. This is what they usually call capitalization on liabilities or outflow (Pratt, 2003; Kiyosaki and Lechter, 2002).

The ability to read, understand, and interpret the financial statements is a key element of financial statement analysis, which results are in turn used as the basis for taking steps towards financial decision and company valuations (Pratt, 2003; Comiskey & Mulford, 2002).