Financial statements

Question 1

Performance

Answer 1

Income statement or profit report (financial statement/reports)

Profitability: the ability of a business to earn a return on its investments in assets and equities. The Income Statement shows the difference between income and expenses, which is known as either profit or loss

Question 2

Financial position

Answer 2

Balance sheet (financial statement/reports)

Leverage: The relationship between debt (externally owed equity) and equity (internally owed equity). The balance sheet shows assets and liabilities with the difference referred to as equity.

Question 3

Liquidity

Answer 3

Cash flow statement (financial statement/reports)

Liquidity: the ability of the business to pay its debts as they fall due. The cash flow statement shows all the cash inflows and cash outflows over a period , to help explain the resultant bank balance.