How Financial Position Works

Accountants determine a businesses' financial position by examining its assets, liabilities, and equities. Assets are resources which a business or entity owns, and they generate income for the owners. Your company may possess a piece of land, which produces rent income. This land is an example of an asset. You may owe money or own a property that owes money, and this is called a liability. Equity describes the amount of money a firm's shareholders receive. Once we know a company's assets, liabilities, and equity, we can unearth its financial position.

Determining a company's financial position is essential; it's crucial to you- the business owner or a future owner if you are trying to sell your business. Determining your business' financial position will help you to comply with government regulations. The government establishes laws that all companies must abide by; among these are taxation laws. Determining your financial position enables you to operate within such laws' bounds and protects you from financial danger.

Companies' or businesses' financial positions can change often. When determining the financial position, usually accounts look at the fiscal year of a company. But really, you can set any time frame when looking to determine a financial position.

Real-World Examples of Financial Position

Walmart's total assets as of 2020 stood at $236,495,000, while the company liabilities were $154,943,000. The net tangible assets constituted upwards of $43,596,000. Further, the value of ordinary shares was $2,800,000. Collectively, these numbers represent the financial position of Walmart during the 2020 financial year.

From 2007 to 2010, Google exhibited a strong financial position despite ups and downs. The company averaged an annual 25% real growth rate (except the 7% drop in 2009). This indicates the consistent growth of actual revenue. Overall, Google's financial position was a resounding vote of confidence in the company management for producing high-value, on-demand products.

The fiscal year 2019 was pivotal and record-breaking for Microsoft Inc. The company raked in over $125 billion in revenue. The operating income cost was $43 billion; the cash-flow amount was $50 billion. The company shareholders received more than $30 billion. While releasing the year's financial position details, Microsoft revealed that its flagship project-cloud business- brought in more than $38 billion in 2019. This represented a 63% gross margin improvement.

History of Financial Position

In 1494 an Italian businessman known as Luca Pacioli published a book called Summa. The book contained a new bookkeeping system, a concept that had just hit the ground at the time. This man would later take the credit as the father of accounting.

Interestingly, most modern philosophies of financial position stemmed from this book. Principles devised centuries ago to assess businesses' financial position eventually gave birth to advanced knowledge on the subject. Professionals apply the same principles in determining the business's financial position. Overall, the concepts that many have mastered on the idea of financial position result from years of gradual development.