3.5.1 Interpretation of financial statements Flashcards
financial statements
- Statement of comprehensive income (past) - measure performance over given period/year (income/costs)
- statement of financial position (present) - snapshot of assets and liabilities on particular day
- cashflow forecast (future) - summary of cash inflows/outflows over period, shows how have generated and disposed of cash and liquid funds during specific period
revenue
sales during the period
sometimes referred to as the ‘top line’
profit quality
measure of how the current profit level reflects the firms ability to maintain a certain level of profit in long run
- profit used to assess performance
- need to know if one off circumstance that affects accounts
low: cant sustain, if firm decides to sell off non CA net profit increase as a one off income
3 ways profit used
- retained
- tax
- dividence
exceptional item
-large, one off financial transactions arising from ordinary trading activities
e. g. loss of sales from new entrants
e. g. large fine imposed by competition commission
two types of items
- extraordinary
- exceptional
so large they can distort account e.g. when banks incurred unusually large bad debt charges
extraordinary item
large transactions outside normal trading activities and not expected to recur
e. g. selling off of division or brand
e. g. cost savings from restructuring
balance sheet (SOFP)
financial document summarises net worth of a business
nothing to do with profit
net assets & net current assets
net current assets comes before net assets
net current assets: liquidity short term
net assets: shows net worth of the business (assets-liabilities)
total equity
total funding (add up all of bottom section)
MOPS
market objective product situation
debtors
receivables
creditors
payables
