Financial Statements

Question 1

Statement of Financial Position

Answer 1

The statement of financial position is a ‘snap-shot’ of a company taken on the last day of the accounting period. It lists the assets and liabilities of a company, and provides a picture of the company’s financial health at the year end.

Question 2

Income Statement

Answer 2

The income statement shows all the income and expenditure relating to a company’s period of account, usually lasting one year. It summarises income and expenditure for the whole 12
month period (and whether there is a profit or loss).

Question 3

Cash Flow Statement

Answer 3

The cash flow statement shows the cash received and paid by a company during the accounting period. It is similar to a bank statement.
The statement of financial position and income statement are prepared on an accruals basis, meaning that they match income and expenditure in the period to which they relate, irrespective of cash movements.
Shows how much cash a company has generated, what other sources of cash have been used, and what applications of cash the company has made.

Question 4

Free Cash Flow

Answer 4

Defined as its operating cash flow divided by net cash AFTER
deducting capital expenditure.

Question 5

Goodwill

Answer 5

Goodwill refers to “intangible” non-physical assets to which a financial / economic value can be attached which belongs to the company. Examples include brand values, the value of a loyal customer base and a company’s reputation.