How Can I Tell How My Corporation is Doing?
1.) The net income on the Statement of Income indicates how profitable the corporation has been over the year. This number must be read in proportion to the corporation's size and assets. For example, just because a smaller corporation's net income is less than a larger corporation's net income, it does not mean that the smaller corporation is doing poorly.
2) Look at the "dividends paid" in the Statement of Shareholders' Equity and see how it corresponds to the net income made by the corporation. If there is a large net income and large dividends, the company is probably doing well. If the two numbers are disproportionate, there may be something going on behind the scenes that the statement is hiding.
3) Check the balance sheet. The value of the current assets should be greater than the current liabilities in order for the corporations can pay debts on time. Ideally, the ratio of current assets (minus stocks) to current liabilities should be slightly greater than 1.0 so there is enough money in hand to pay the current debt. Quickly growing assets, however, are not always a good indication of a prosperous company. Assets can be attained through credit that must be paid back so the corporation isn't necessarily wealthier. Also, assets can be tangible resources that will rapidly decrease in value. It is more important to look for growth of the shareholders' equity than the corporation's assets.
5) Be sure to look
for trends over time. Some of the best indicators are the net earnings,
yearly balance, and dividends paid. The financial statements usually
include data for the previous three years so that changes are obvious.
Take advantage of this layout to examine how the corporation has been
doing relative to itself. This is the best way to track the corporation's
progress since it is hard to compare the 13 diverse regional corporations
to each other.
YOUR ANNUAL REPORTS!