Friday, February 17, 2012

Financial Statements Can Determine Layoff Probability

A Financial statement is a company's resume reflecting the financial activity of the business. There are four key elements that are part of a financial statement. These elements are the balance sheet, income statement, statement of retained earnings, and a statement of cash flow. A balance sheet reports a business' net equity, assets and liability. An income statement states a business' expenses, profits and income over a specific period of time. A statement of retained earnings documents the fluctuations in a business' retained earnings over a period of time. The statement of cash flow states a business' operating, investing, and financial cash flow. All these elements of a financial statement are used to judge the financial profitability and activity of a business. A positive or negative financial statement can determine if a company is in a strong or weak financial position.
The function of a financial statement is to reflect the financial weakness or strength of a business. Internally, it is used by a business to make financial decisions such as hiring new employees or layoffs. When businesses are financially struggling they look to cut cost and the fastest way to cut costs is to eliminate employees. Today in a struggling economy, employees are regarded as costly liabilities, and businesses and governments are trying to reduce those liabilities as much as they can. When the recession of 2007 begun more than 8 million Americans have lost their jobs. According to the government, of those job losses, 700,000 stem from layoffs at just 25 companies. According to the National Bureau of Economic Research, mass layoffs occurs when at least 50 initial claims for unemployment insurance are filed against an establishment during a consecutive 5-week period. During the most recent recession, employers took 3,059 mass layoffs actions in February 2009 involving 326,392 workers. During the same period, the unemployment rate rose to 10.0 percent.
The auto industry felt the pain of the recession. U.S car sales dropped from an average 16 million a year in 2005 to 11 million in 2009. General Motors was especially hit hard, forcing to cut tens of thousands of workers. The largest layoffs came in February 2009, when the company let go 50,000 people, almost 20% of its workforce. During the credit crisis of 2008, Citigroup was forced to cut 50,000 jobs as part of a plan to knock down expensed by 20%. The bank was reeling from subprime mortgage losses that had driven its stock down from $35 to under $4 in less than a year. Circuit City slowly succumbed to pricing pressures and competition from both competitors' Best buy and Walmart. It begun with aggressive layoffs in 2007 and completely shut its doors in 2009, bringing a total layoffs to more than 40,000 after it closed 567 stores.
A business' financial statements are a direct relationship of how well a company is performing and if they are in a position to hire new employees or layoffs. Another alternative for businesses to cut costs is by sending as much work overseas where the wages are far lower and where the regulatory is much simpler. Today, most large corporations only want to have as many U.S. workers as absolutely necessary. In a world where labor has been globalized, some corporations shell out massive amounts of money to American workers when they can save paying lower wages to workers overseas. In the old days, a person could go to college, get a good paying job with one company for 30 years and retire with a nice pension. Unfortunately for today's generation, corporations do not have the same loyalty, when a company reaches a financial hurdle; one of the easiest and fastest ways to cut costs is to eliminate its employees.

Wednesday, February 8, 2012

What Are the Basic Accounting Principles?

For every business owner, it is not enough to have just the investment and the workforce to do the job. It is also as important for you to have a hands-on management of your business to make sure that everything goes smoothly and the processes go unhitched. Therefore, it is also necessary for you to have the knowledge of basic accounting principles.
Basic accounting principles that have to be learned include:
1. Understanding that the business is a separate entity from the owner. Whatever transactions being entered into by the owner should not be put in the record book of the company and vice versa. Both should have to be treated separately.
2. Assuming that this entity will operate for an indefinite period of time. As such, recording of the assets should not be based on their market value but on their original cost. Furthermore, these assets are deemed not to be sold immediately.
3. Taking note that when recording business financial transactions, the monetary unit should be used like US dollar, Canadian dollar and other currencies that apply. Therefore, if there are information or transactions that cannot be measured as a monetary unit, they will not necessarily be recorded.
4. In relation to the second item, anything or any resource acquired by the business should have to be recorded and assigned value based on its price of acquisition. However, this may not apply especially when the business entity is going through liquidation or is in the process of closure.
5. Having a matching record of revenue and expenses.
6. Following the expense principle. Take note that your business does not only make profits but it also makes some expenses. Before you count how much the company has earned, try to deduct the expenses and you will come up with the net profit.
7. Understanding the principle of accrual. To be able to really take note of the company's business transactions, you have to record expenses and revenues under the period it was earned and not under the period the money was received or spent.
For you to be able to fully understand the said principles, you have to first get acquainted about terms such as debit, credit, asset, liability, and others. You also have to understand fully the benefits you can get from accounting and realize that it is a very important tool for managing your business.
If you do not have time to get a formal training on this subject, then you can utilize the internet and look for an online course that will take you through the aspects that you need to learn. The amount you will spend will be worth all the things that you will be getting.