Analysing Financial Performance

Question 1

What are financial statements?

Answer 1

A formal record of the financial activities and the financial position of a business. Financial statements are produced for legal and tax reasons, as well as for different stakeholders and potential investors. They give an idea of the financial position and performance of a business.

Question 2

What are the 3 main financial statements?

Answer 2

CASH FLOW STATEMENT

• The cash flow statement gives an overview of the cash that has come in and out of the business in the past year.
• It also gives the net cash flow, opening cash balance and closing cash balance.

INCOME STATEMENT

• An income statement shows a business’ financial performance over a period of time.
• It shows the revenue, costs and profits of a firm.

STATEMENT OF FINANCIAL POSITION (BALANCE SHEET)

• This reports the assets, liabilities and equity of a company on a given date.
• It essentially shows what a business owns and what it owes.

Question 3

What is a balance sheet?

Answer 3

It is a snapshot of the business’ financial position at one moment in time. It does not tell us anything about the business’ performance over the last year. The statement of financial position has 3 key components.