Interpretation of Financial Statements


    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.

    1. Statement of Financial Position – (balance sheet)
    2. 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


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