Accounting for Managers

Running Head : FINANCIAL STRUCTURE AND STATEMENTS

Importance of Financial Structure and Statements

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Importance of Financial Structure and Statements

Introduction

This essay discusses the role of financial structures on the profitability and stability of companies and the role of financial statements prepared using historical cost convention and accruals concept in the decision making process . Both aspects of companies discussed here are of much importance as they directly affect companies their financial condition and the representation of facts to the relevant users

. The financial structure of a company reflects various sources the company has used to finance its operations . The financial statements provide vital information to users such as shareholders managers , banks , tax authorities and research analysts to make important decisions

Financial Structure

The financial structure of a firm is the way the assets and operations are financed . A company employs various modes of financing to acquire assets and support its operations . The financial structure includes components such as short term liabilities , long term debt and shareholders ' equity . Financial structure is different from capital structure as the capital structure only includes long term debt and shareholders ' equity and ignores short term liabilities . More successful companies focus more on financial structure rather than capital structure as the analysis of financial structure reveals both the short term and long term aspects of the company in terms of profitability and stability , whereas capital structures focus mainly on long term stability of the company . Short term liabilities include but are...