Interpreting Financial Statements (3.5.1)

Question 1

Why do businesses produce financial statements?

Answer 1

Produce financial statements to show stakeholders how well or not well the company is doing

Question 2

What type of companies have to by law publish these statements to the general public?

Answer 2

Private or public limited companies

Question 3

What does a statement of financial position show?

Answer 3

Shows all the assets and liabilities a company has, showing stakeholders exactly what it owns and owes.

Question 4

What is another name for a statement of financial position?

Answer 4

Balance Sheet

Question 5

What is a Current Asset?

Answer 5

Short-term assets turned into cash in one year

Question 6

What is a Non-Current Asset?

Answer 6

Long-term assets that cannot be turned into cash

Question 7

What is Current Liability?

Answer 7

Short-term debt owed within a year

Question 8

What is Non-Current Liability?

Answer 8

Long-term debt not owed within a year

Question 9

What are the two type of ratios a business could use to create a balance sheet?

Answer 9

Current Ratio and Acid Test Ratio

Question 10

What are the formulas for Current Ratio and Acid Test Ratio?

Answer 10

Current Ratio=Current Assets/Current Liabilities

Acid Test Ratio=Current Assets-Inventory/Current Liabilities

Question 11

What are the equations for Gross Profit, Operating Profit and Net Profit (Profit for the year)?

Answer 11

Gross Profit=Revenue -Cost of goods sold
Operating Profit=Gross profit-Operating costs
Net Profit=Operating Profit-Tax and dividends