Financial Accounting Tools for Business Decision Making

One thing I find interesting about the primary financial statements published by a corporation are how the statements inter-relate. The classification cash used in a balance sheet appears on the statement of cash flows and should be the cash at the bottom of the statement of cash flows. The numbers from the different financial statements provide the story as to how the company is positioned financially and tells us the story of the overall company performance. In the book Financial Accounting Tools for Business Decision Making, Kimmel states, “The debt to total asset ratio is one source of information about long-term debt-paying ability.

It measures the percentage of total financing provided by creditors rather than stockholders… Thus, the higher the percentage of debt financing, the riskier the company” (Kimmel, 2011). This debt to total asset ratio information is only 1 part of the financial picture. What if a company was highly leveraged but was still profitable. Take property management for instance. What if the asset would be profitable even if it was 100% leveraged. Risky? Maybe, but without all the financial statements to determine profitability the business owner would never take that risk. Often times real-estate companies are highly leveraged and still highly profitable. In my opinion not having any equity is an insane decision. Kimmel, P., Weygandt, J. & Kieso, D. (2011). Financial accounting tools for business decision making. Danvers, MA: John Wiley & Sons, Inc.