MD#7 : Financial Statements (1st Grading Period)

Question 1

It summary report of business activity. It is a formal record of the financial activities and position of a business, person, or other entity.

Relevant financial information is presented in a structured manner and in a form easy to understand.

Are used by investors, creditors, management, and regulatory agencies to gauge the financial health and performance of the entity.

Answer 1

Financial Statements

Question 2

The Users of Financial Statements

Answer 2

1. Investors and Shareholders (Internal)
2. Creditors and Lenders (External)
3. Management (Internal)
4. Employees (Internal)
5. Customers (External)
6. Suppliers (External)
7. Government and Regulatory Advisors (External)
8. Analysts and Financial Advisors (Internal)
9. General Public (External)
10. Competitors (External)

Question 3

Purpose: To assess the company’s profitability and growth potential, make informed decisions about buying, holding, or selling shares, and evaluate the return on their investments.

Focus: Profitability, return on equity, earnings per share, and dividends.

Answer 3

Investors and Shareholders

Question 4

Purpose: To evaluate the company’s ability to repay loans and interest, and assess creditworthiness.

Focus: Liquidity ratios, debt-to-equity ratio, cash flow statements, and overall financial stability.

Answer 4

Creditors and Lenders

Question 5

Purpose: To make strategic and operational decisions, manage resources efficiently, and plan for future growth.

Focus: Detailed internal financial data, performance metrics, budget comparisons, and variance analysis.

Answer 5

Management

Question 6

Purpose: To gauge the financial health of the company, job security, and potential for wage increases or bonuses.

Focus: Overall profitability, growth prospects, and financial stability.

Answer 6

Employees

Question 7

Purpose: To ensure the company’s long-term viability and its ability to provide goods or services.

Focus: Financial stability and solvency.

Answer 7

Customers

Question 8

Purpose: To assess the company’s ability to pay for goods and services supplied.

Focus: Liquidity ratios and payment history.

Answer 8

Suppliers

Question 9

Purpose: To ensure compliance with tax laws, regulations, and other legal requirements.

Focus: Accurate reporting, compliance with accounting standards, and tax liabilities.

Answer 9

Government and Regulatory Advisors

Question 10

Purpose: To provide investment advice, perform financial analysis, and give recommendations.

Focus: Comprehensive financial data, trend analysis, and industry comparisons.

Answer 10

Analysts and Financial Advisors

Question 11

Purpose: To understand the company’s contribution to the economy and community, and its social responsibility practices.

Focus: Corporate social responsibility (CSR) reports, sustainability practices, and community engagement.

Answer 11

General Public

Question 12

Purpose: To benchmark performance and develop competitive strategies.

Focus: Market share, profitability, and strategic initiatives.

Answer 12

Competitors

Question 13

The Complete Set of Financial Statement

Answer 13

1. Statement of Comprehensive Income (Income Statement)
2. Statement of Financial Position (Balance Sheet)
3. Statement of Changes in Equity (Owner’s Equity / Capital)
4. Statement of Cash Flow (Cash Flow)
5. Notes and Disclosure of Accounting Policies