FINANCIAL INFORMATION INTERPRETATION OF TRADING, PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND CASH FLOW STATEMENT SLIDE 5

REVISION Profit and Loss Balance Sheet Cash Flow Statement To calculate the profit or loss earned by the business over the last year Balance Sheet To show the assets and liabilities of the business Cash Flow Statement To show all the money that has flowed in and out of the business in the last year SLIDE 5

INTERPRETATION OF TRADING, PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND CASH FLOW STATEMENT All public and private companies are required to provide financial statements (final accounts) at the end of each trading period Accounts are of interest to the Inland Revenue as they can then determine the tax payable by the organisation SLIDE 5

INTERPRETATION OF TRADING, PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND CASH FLOW STATEMENT Sole Traders, Partnerships and Private Companies do not legally require to publish their final accounts May have to provide these when attempting to borrow from Banks or other Financial Institutions Public Companies (who issue shares) are legally obliged to publish their final accounts Rival companies, investors, lenders and trade union representatives use the information contained in published accounts SLIDE 5

INTERPRETATION OF TRADING, PROFIT AND LOSS ACCOUNT, BALANCE SHEET AND CASH FLOW STATEMENT Careful study of final accounts can provide an enormous amount of information about the performance of the organisation By interpreting the available data and making comparisons with previous years figures, it is possible to find the real indicators of the future success and financial security of an organisation SLIDE 5

INTERPRETATION OF TRADING, PROFIT AND LOSS Possible questions that it may answer: How did this year’s trading compare with last year’s/rivals? Has the gross/net profit improved when compared to last year? Are we making efficient use of our stock? Does our net profit compare favourably with those of our rivals? SLIDE 5

INTERPRETATION OF BALANCE SHEET Do we have enough working capital (liquid assets) to avoid cash flow problems and meet our short term debts? Are we making enough use of free credit facilities available to us? Is our level of debt comparable to that of our competitors? SLIDE 5

INTERPRETATION OF CASH FLOW STATEMENT Has the net debt position of the business changed dramatically over the last year? If so, why? Have we kept proper control of cash flow during the year? How does our liquidity compare to that of our competitors? SLIDE 5