Financial statements Flashcards
(17 cards)
Why do businesses use a range of financial statements?
To meet legal requirements
Support decision-making to measure performance and set objectives
Communicate with stakeholders - shareholders can assess performance of their investments and employee supplies and members can use them to determine stability of the business
What’s the two main important financial statement
Income statement, and statement of financial position
Income statement
Summarize his businesses, income and costs and identify profit or loss made over a period of time
Statement of financial position
Identifies business assets and liabilities and identify the capital used to fund the business at the specific point in time
 four types of profit calculated in the income statement
Gross profit, net profit profit after tax and retained profit
Main features of income statement
Sales revenue, cost of sales. The cost of production are buying the good actually sold, gross profit when their revenue is greater than the cost of sales, net profit, and operating profit, which is the profit made by a business after all costs have been deducted from revenue
Profit margins
Measure how successfully a business convert to revenue into profit. Profitability can be measured either the gross profit margin with net profit margin.
Using income statements
They allow and inform managers, whether the business is making a profit or lost they allow the managers to compare performance the previous years, make future forecast, make comparisons with competitors
Assets
Items owned by the business, two types non-current assets owned by a business in long-term and current includes cash and items that can be turned into cash relatively critically usually within 12 months
Liabilities
Items owed by a business two types current are short term financial obligations that a business must usually pay within a year or as demanded by creditors
Noncurrent money owed by a business that are due to be repaid over longer than 12 months
What does the statement of financial position show?
The financial structure of a business at a specific point in time also known as the balance sheet
Total assets
Noncurrent + current assets
Total liability
Current + noncurrent liabilities
Net assets
Total assets - total liabilities
Equity
Has the business is funded also known as capital employed
How do investors/stakeholders use for statement of financial position and the income statement
Statement of financial position - identify asset structure of business how their investment is used. Determine rough value of a business.
Income statement - interested in revenue cost, and profit earned, shareholders may use ratio analysis to us to identify profit margins
Management
Uses statement of financial position to identify financial position of business at given point in time, useful to assess working capital positions of the business, provide information on Structure, helping guide decisions
Income - interested in key performance dates such as improvements and sales revenue and net profit can a decision-making and provide support
