Interpretation of Financial Statements

Financial Statements: Companies are required by law to produce financial statements at the end of the financial year – although many PLC’s produce them on a quarterly basis.

Statement of Financial Position – (balance sheet)
Statement of Comprehensive Income – (profit and loss account)

Statement of Comprehensive income: Shows the income and expenditure for the business for a specific time frame, and calculate the profit made by the business.

Key Information for Comprehensive Income:

Revenue
Cost of sales
Gross profit
Selling Expenses
Administrative Costs/indirect costs
Operating Profit
Finance Costs/interest
Net Profit
Net Profit after tax is deducted

Statement of financial position: Provides a summary of a firm’s assets, liabilities and capital. It is like a photograph of the financial position of a business at a particular point in time

Assets
Liabilities
Capital

Assets = Capital + Liabilities

Non-Current Assets: Any asset not expected to be sold in the next 12 months. They are the long-term resources of a business:

Intangible Assets:
- Goodwill
- Brand Names
- Copyrights
- Trademarks
- Patents
Tangible Assets:
- Factories
- Machines
- Equipment

Investments – shares held in other firms

Current Assets: Liquid assets which belong to the business – either cash or assets expected to be turned into cash within the next 12 months.

Inventories
Trade and other receivables
Cash at bank and in hand

Current Liabilities: Any money owed by the business that is expected to be repaid within 12 months is called a current liability

Borrowing
Trade and other payables
Dividends Payable
Current Tax Liabilities

Non-Current Liabilities: These are the long-term liabilities of a business. Any amount of money owed for more than one year will appear in this section of the balance sheet

Other loans and borrowing
Retirement Pension Obligations
Provision