report for Western Company based on the construction of the financial statements
Introduction
Selling the product of a company is not the final step in operating a business. Understanding the financial state of the business is essential in determining the direction the business is taking. Financial statements are the primary tools that show the progress of any business. It allows a constant monitoring of expenses and revenues. Important financial statements for businesses include; income statement, cash flow statement, and the balance sheet. All the three financial statements play a significant role in determining the financial health of an organization. The financial statements of the Western Company provide meaningful information of the financial performance of the company since its inception in 2014. Below is the report for the company based on the construction of the financial statements.
Income Statements
The resulting income statement from the information provided for the three financial years shows that there is a steady increase in revenue in the company. The revenue in 2014 was $2,000. For the next year, the revenue increased to $3,900. Lastly, for the year 2016, the recorded was $4,200. The steady positive deviation in revenue could be attributed to increasing sales in the company. The sales department is doing a good job to constantly improve sales. On the other hand, the income statement reveals a similar trend on company expenses. The initial expense in 2014 was $1,300. The expenses increased in 2015 to $2,500 and further to $4,500 in 2016. The company exhibits a positive correlation between sales and expenses. Increase in sales means that expenses increase. But the rate of increase in expenses is higher than the rate at which revenue is increasing
Additionally, there is a mix trends concerning net income. The company reported positive profits in the first two years, but recorded a loss in the year 2016. But in the year 2016, the company expenses exceeded revenue which resulted into a loss of $300.
Balance Sheet
In 2014, the company’s only asset was the cash used to start the business. The cash was $8,800. The amount of cash in the company increased to $10,300 in 2015, and reduced to $6,800 in 2016. Since the company acquired a piece of land in 2015, it was included on its list of assets. The land was retained in the following year. The land was valued at $4,700 in 2015 and 2016. The total assets increased in the first two years and significantly reduced in the last year. The company’s liabilities shows a similar trend to assets. It increased in the first two years and reduced in the last year. The contributed capital increased steadily from $5,000 in 2014 to $9,400 in 2016.
Statement of Cash Flows
In the three years, cash flows from revenue increased steadily. This represented inflows. Cash was received from sales of company products. The amount of expenses also increased over the three years. The net cash flow increased for the first two years and reduced in 2016 due to increased expenses. The only cash outflow for land was witnessed in 2015 when the company purchased land. The company has been cutting dependence in borrowing. The company did not borrow any funds in 2016. In 2016, the company was operating with negative net cash flows. The reduced borrowing could have accounted for the negative net cash flows.
Conclusion
In conclusion, the company is increasing its revenue but the expenses seem to be eating into the income. The company is also doing well in managing its debts. The reducing net cash flow is attributed to reduced owner investment and reduced borrowing. Although the profit for 2016 was negative, the company is in a healthy financial state.