Financial performance analysis (03)

Question 1

SUMMARY

Answer 1

In summary, the following are covered in this topic:
1. The purpose of financial statements is to provide information about the
financial performance, postion and cash flows status of a business entity that is
useful to stakeholders in making decisions.
2. Three common financial statements that businesses prepare are Statement of
Profit and Loss (Income Statement), Statement of Financial Position (Balance
Sheet) and Statement of Cash Flows.
3. Stakeholders of a business analyse financial ratios, classified into liquidity,
profitability, gearing and investment ratios to make informed decisions on the
performance of a business.
4. For meaningful analysis, stakeholders would compare ratios to previous years,
against a competitor or against industry benchmark.
5. Working capital refers to the money available for the daily running of a business.
6. The working capital cycle is the interval between payments for costs of
production and cash receipts from customers.
7. Management of working capital includes seeking alternative sources of finance,
improving cash inflows and reducing cash outflows.