4.3 How To Interpret Financial Statements Flashcards
Why do businesses need financial statements ?
Law, legal requirements
Help managers, to plan and evaluate
Guide investors, show why they the business is worth investing in.
How to interpret an income statement ?
Shows revenue and costs over a particular period
How to interpret a statement of financial position ?
Shows assets, liabilities and equity
How to interpret a cash flow statement ?
Shoes cash inflows and outflows
How to interpret a cash flow forecast ?
Shows expected cash inflows and outflows
What is gross profit ?
Money made from selling products after the cost of producing the products has been subtracted
What is net profit ?
Money made after the costs have been subtracted from gross profit
What’s on an income statement ?
Profit or loss statement
Usually made at the end of the financial year. Normally 12 months
Shows revenue a business has received or sales it’s made
Cost of always
Any expense paid
Any profit made
What are the expenses and net profit for income statement ?
Expenses, daily costs of a business. E.g wages, electricity, rent, advertising, telephone
Net profit, also called net earnings or net income.
This is the profit after all expenses have been paid
What is the statement of financial position ?
A statement that gives info about financial health of a business
Also called a balance sheet
Shows
Assets
Liabilities
Equity
What’s shown in a cash flow statement ?
A statement that shows cash flow of the business
Shows actual money in and out
When cash is expected to come in (receipts)
When cash is expected to go out (payments)
What is a cash flow forecast?
Shows prediction of money flows in and out of the bsuiness over a given period of time usually monthly.
Layout would b similar to a cash flow statement
How to resolve cash flow problems ?
Reduce spending
Buy less stocks
Increase sales
Reduce costs
Sell assets u don’t need anymore
Chase people who owe you
