3.5.1 Interpreting Financial Statements

Question 1

What can you find from a statement of comprehensive income

Answer 1

• changes in sales revenue
• changes in direct cost of sales
• how well a business is managing it operating costs
• profitability of a business
• unusual incomes/ expenses

Question 2

What are stakeholders interest in the statement of comprehensive income

Answer 2

• Shareholders will be interested in profit
• government, identify level of tax
• employee, profitability of the business may indicate the potential for remuneration and rewards

Question 3

What can you find out from statement of financial position (balance sheet)

Answer 3

• value of a business
• current assets
• short term liabilities
• liquidity of the business
• Long term debts of a business

Question 4

What are stakeholder interests in the statement of financial position

Answer 4

• managers, use it to analyse liquidity and risk associated with debt
• suppliers and creditors, use it to see whether the business can pay debts
• shareholders, use it to analyse how their investment is doing