3.5.1 Interpretation of financial statements Flashcards
Statement of comprehensive income
this measures the businesses performance over a given period of time usually one year
Statement of financial position
a snapshot of the businesses assets and its liabilities
Cash flow statement
a summary of cash inflows and outflows over a period of time. Shows how the business has generated and disposed of cash and liquid funds during a specific period
Cash
source of finance
bank loans
measured on day cash is received
Profit
just sale of products
measured when transaction happens
customer bought hasn’t payed yet
Income statement
revenue cost of sales gross profit fixed overheads operating profit net financing costs profit before tax corporation tax net profit
Gross profit
Revenue - cost of sales
Operating profit
Gross profit - fixed overheads
Net profit
Operating profit - finance costs
Why would employees want to see income statement?
net profit
- pay rise
- bonus
- job security
Why would managers want to see income statement?
expenses - cost and revenue budgets
Overheads
revenue - performance related bonus
net profit
Why would government want to see income statement?
profit before tax
sales revenue - corporation tax, VAT
Why would shareholders want to see income statement?
net profit
- sell shares
- dividend
Why would suppliers want to see income statement?
cost of sales - potential to sell
net profit - reliability
Assets
something the business owns that has value
Liabilities
Something the business owes
Liquidity
businesses ability to pay off short term debts
Balance sheet
a financial document that summarises the net worth of a business
What is debt finance?
- loan
- corporate bonds
What is equity finance?
-selling shares
Balance sheet
total assets = non current assets - current assets
total liabilities = non current Lia - current Lia
assets - liabilities = net assets
share capital + reserves = total equity
Non current assets
own for more than a year - difficult to sell within a year
- buildings
- vehicles
- goodwill (brand value)
- plant and machinery
Current assets
can sell within a year
- stock/inventory
- debtors
- cash
Current liabilites
payed back within year
- creditors
- overdraft
Non-current liabilities
long term borrowing
- mortgage
- loans
- corporate bonds
Total equity
how you funded your business = net assets
Working capital
= net current assets
current assets - current liabilities
-money going around the business
-for operations of the business
Debtors
-people who are in debt to you, or you owe you money
Creditors
-people you are in debt to, or you owe money to
Why do shareholders want to see the balance sheet?
- total equity
- retained profit
- net-current assets
- non current assets
Why does the bank want to see the balance sheet?
- long-term liabilities
- net current assets
Why do managers want to see the balance sheet?
- net current assets
- captial structure
- net assets / total equity
Why do suppliers want to see the balance sheet?
- net current assets
- current assets
- current liabilities
