Assistant Manager

Businesses need to track and have a way to know if they are profitable or losing money, determine what changes need to be made, how resources should be used, and/or should the business continue doing business, to name a few. This is done through accounting and the use of financial statements and non-financial statement information. Financial statements are the roadmap to companies and investors to answer the questions that are asked to determine the fate of the company. This paper will look at the three basic financial statements, Consolidated Statement of Earnings, Balance Sheet and Statement of Cash Flows, and how they relate to The Home Depot in 2008.

Consolidated Statements of Earnings - Income Statement

The first basic financial statement is called the Consolidated Statements of Earnings or commonly called the Income Statement or Profit and Loss Statement. The consolidated statement of earnings combines "the revenue, expenses, and income of a parent company and its subsidiaries" (Financial Dictionary, 2011). The income statement provides the primary source of information to tell if the company is profitable or not. The consolidated income statement refers to the entire corporation, not just its individual parts.

The Income Statement is important because right away you can tell if the company is profitable or losing money. Besides being able to see if the company is profitable you can gain other understandings about the company. Based on Income Statement information the company and investors can calculate ratios that will help the company make better informed decisions on what direction they should go and will provide data to investors so they can determine if they want to invest, continue to invest or discontinue investing in the company. Some common ratios based on the Income Statement are: Gross Margin, Profit Margin (after tax), and Earning per Share (AccountingCoach, 2011). Based on The Home Depot's 2008 Annual Report we can determine these ratios. As of February 1, 2009, The Home Depot's Gross Margin was .3365%, Profit Margin (after tax) was -0.0000072, and the Earnings per Share were $1.34. These numbers don't mean anything unless you compare them to prior periods. Based on prior periods, The Home Depot's Gross Margin, Profit Margin and Earning per Share have declined for three years in a row. This is based on lower net sales and increased operating expenses. Management could use this information to conclude that they need to fi...