Main Financial Statements and Steps in Performing Accouting Analysis

Main financial statements

Income statement

Provides a summary of the revenues (increases in economic benefits) and expenses (decreases in economic benefits) over a period of time Provides information about the firm’s performance, showing whether the firm was profitable over the period

EXAMPLE Inc. – Income Statement / April 30, 2013

Net income = Revenues – Expenses

Balance sheet or Statement of financial position

Provides information about the economic resources controlled by the firm (Assets) which is useful to estimate firm’s ability to generate future cash flows Provides information about the firm’s financial structure (Liabilities and Equity) which is useful to:

◦ predict future finance needs and earnings distributions ◦ predict firm’s ability to repay its liabilities according to agreed terms

Net assets = Equity Assets = Liabilities + Equity

Statement of changes in equity

Provides a summary of the contributions and distributions to equity holders and the comprehensive income of the year;

EXAMPLE Inc. – Retained Earnings / April 30, 2013

Statement of cash flow

Provides a summary of cash coming in (+) and cash going out during period, by type of activity:

◦ Operating activities ◦ Investing activities ◦ Financing activities

EXAMPLE Inc. – Retained Earnings / April 30, 2013

Provides information about increase/deterioration of firm’s liquidity position and ability to generate cash flows

BALANCE SHEET

Integration of FS

INCOME STATEMENT

CASH FLOW STATEMENT

STATEMENT OF CHANGES IN EQUITY

Financial statement Balance sheet (Statement of financial position) Income statement (Statement of profit and loss) Statement of cash flow Information about Elements of the financial statement.

Statement of changes in equity

Financial statement Balance sheet (Statement of financial position) Income statement (Statement of profit and loss) Statement of cash flow Information about net assets and financial position...