POFM - Processes of monitoring and controlling using financial statements Flashcards
what is monitoring and controlling
recording all financial transactions and summarising them into three key reports used to monitor the businesses financial position
financial managers may modify existing strategies in order to maintain the trajectory towards their goals
financial statements
Financial statements are the central tools through which monitoring and controlling can take place
- Cash flow statements
- Income statement
- Balance sheet
cash flow statements
shows a summary of the cash transactions which have occurred over a period of time
It details the inflow and outflows of cash i.e. Movement of cash receipts and cash repayments
what is important to know about CFS
Are they managing their inflows and outflows over time?
Are they spreading out their payments?
Are they planning ahead for upcoming bills?
income statements
determine the businesses operating outcome for a stated period by the matching revenue with the expenses incurred in earning the revenue.
gross profit
Sales – COGS
sales
price x quantity
COGS
Opening stock + new purchases – closing stock
net profit
Gross profit – total expenses
what is important to know about income statements
Is their revenue at a reasonable level?
Are they managing their stock to maximise gross profit?
Are they managing their expenses to maximise net profit?
balance sheets
Balance sheets show the financial position of the business at one point in time.
what do balance sheets provide
They provide a snapshot of what the business owns and how they paid for them
Balance sheets are thus based on the accounting equation of:
Assets = liabilities + owners equity
what is important to know about balance sheets
Do they have enough current assets to meet their current liabilities?
Do they have a sustainable mix of liabilities and equity to fund their needs?
Are their non-current assets productive?
