• Name the financial statements Tom was looking at? What is the importance of each of the statements?

 Tom is looking at the financial statements that include balance sheet, income statement, and cash flow statement. Financial statements of a company give an overview about the company’s overall financial performance. It defines the health of the company. These statements can be used for evaluation and analysis of the company’s performance. The importance of various financial statements is:

Income statement

The income statement of a company gives details on the annual performance of the company. It gives information about the income, which is earned during the year. It also gives information about what expenses have been incurred to generate the income. Income statement of a company is important for management, since it helps in measuring performance and control costs after analyzing them. It shows how much profit has been made during the year using the resources. Using this information, management of the company makes decisions that help increase the profitability. It helps in future planning. For investors, it provides how much a company is earning; thus, it helps investor to make decision whether to invest or not.

Balance sheet

Balance sheet or statement of financial position is the statement that provides information on assets, liabilities, and equity of the company. The assets are divided into current and non-current assets. Liabilities are divided in current liabilities, and non-current liabilities. The statement of financial position defines the company financial standing at the year end. This helps the company’s management to make certain strategic and financial planning. It confers the financial health; and thus, is a useful document for investors, bankers, and lenders. Lenders usually analyze, using balance sheet, whether the company has enough potential to pay off its debt. Investors analyze company’s future prospect etc.

Cashflow statement

The Cashflow statement is another statement in the financial statements. It is published annually by the company and shows cash and cash equivalent activities during the year. It shows information on the operating, investing, and financing activities; it helps company to analyze from where the cash comes and where it is incurred. Therefore, it gives overall cash operations of the company. Using cash flow statement, the company can make different strategies to control cost and increase cash reserves. It helps to analyze policies of the company such as its sales, receivable policy, investment policy and inventory. Such as, if cash is tied up unnecessarily in inventory, then management shall make decision to reduce inventory level and use extra cash to generate earnings.

  • Summarize why despite NHC owning substantial assets in terms of facilities and centers, rapid expansion, acquisitions, and new facilities and growth of existing facilities, the financial performance has remained unsatisfactory?

There are many reasons that despite of the fact that the company has been growing but still the performance remains poor. NHC has been making acquisitions, capital investments, and expansion of facilities, but all goes in vain. The operating performance of the company remains poor. Many factors made the performance unsatisfactory.

Inflation is one of the factors that might affect the performance of the company. Inflation causes various effects on the economy. Because of the inflation, the cost of operating becomes more expensive for the company. Commodities become more expensive thus, the finished goods are offered at higher prices. To reduce the cost, companies lay off its employees as well as reduce wage rates. With less money, customers purchase fewer products. This limits the sales and performance of the company. Similarly, there is a possibility that economy is in recession and thus, the businesses are suffering. In this recession period, the performance of the company is struggling to achieve its targeted level. Besides, making more investment and enhancement the company must control its costs and expenditure to survive the recession.................

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