3.5 Interpretation of financial statements Flashcards
Fixed assets
Remain in business for more than a year.
Income statement
Measures business performance over a given period of time.
Current assets
converted to cash within a year.
Current liabilities
Things that are owed but are settled in a year.
Non current liabilities
Due over a period of longer than a year.
Working capital
money available for day to day running of the business.
Working capital formula
Current assets- current liabilities
Net assets formula
Total assets- Total liabilities
Total equity
Total investment in business from share capital and reserves.
What are net assets equal to?
Total equity
Balance sheet
A snapshot of businesses assets and liabilities on a particular day.
Liquidity
Able to meet short term commitments.
Gross profit
Revenue- cost of sales
Operating profit
Gross profit- Overheads
Net profit
Operating profit- Income or cost
What are Shareholders interested in with a statement of comprehensive income?
Profits grown
Business growth
Dividend payments
What are employees interested with a statement of comprehensive income?
Profits earned
Wage increases
Job stability
What are suppliers interested with a statement of comprehensive income?
Success of company they are supplying to.
Determining trade credit.
What are shareholders interested with a statement of financial position?
Identify asset structure
Calculate working capital
Whether investment is growing
What are managers and directors interested with a statement of financial position?
Identify financial position
Enough liquid assets to pay bills
Provide information on capital structure
What are employees interested with a statement of financial position?
Are jobs at risk or is the business financially stable.
How much tax is the business paying.
Has business performance improved or worsened.
Why use income statements?
Legal reasons
Compare to previous years
Compare to rivals
