Identify trends with an indication of if the financial statements show a positive or negative for the organization and investors.

Using financial statements | Nursing homework help

Trends can be identified from financial statements to assess the performance of an organization and its potential for investors. A trend is the direction that a measurement or statistic is going over a period of time. The most important trends to analyze are those related to revenue, expenses, net income and cash flow.

The sales trend shows whether revenues are increasing or decreasing over time. Increasing revenues indicate growth in the business, while declining revenues suggest a decrease in demand for the company’s products or services. Investors look favorably on companies with consistent revenue growth as it indicates good management and future potential earnings.

The cost of goods sold (COGS) trend measures how much it costs the company to produce its product or provide its service. If COGS increase faster than revenue, this can indicate problems with pricing strategies or rising operating expenses which can cut into profits and reduce investor returns. Companies should aim to have a COGS:Revenue ratio that remains relatively stable over time if they want long-term success and strong returns for their investors.

Analyzing net income trends helps determine if profitability is improving over time as well as any factors driving changes in profitability such as higher sales or lower costs of production/operation expenses. Positive trends indicate positive outlooks while negative ones could signal possible issues with operations management that need addressing before further investment is made by outside parties such as current shareholders or potential new investors .

Finally, cash flow analysis provides insight into how efficiently an organization manages their working capital position (current assets – current liabilities). This metric gives investors an overview of how well money is coming into and out of the organization through operations activities such as debt servicing payments, dividend payments and inventory purchases which can influence investor decisions when deciding whether to invest in a particular firm . Positive cash flows show stability while negative ones may present significant risks that need addressing before investing .
In conclusion, analyzing trends from financial statements helps stakeholders better understand where an organization stands today vis-a-vis yesterday’s performance – both positively (growth opportunities) & negatively (risks) – enabling them make better informed decisions when assessing investment opportunities within organizations.