Financial information

1.

Foundation Year Program
Lecture 10: Financial information
Income statements
Balance Sheet
Analysis of accounts
Introduction to Business
2018-19

2. Learning outcomes

Foundation Year Program
LEARNING OUTCOMES
Income statement
• Why businesses need to keep accounting
records such as income statements
• Why profits are always equal to cash
• Why profits are important
• The differences between gross, net and
retained profit
• What does the income statement contain
Introduction to Business
2018-19

3. Why to record

Foundation Year Program
WHY TO RECORD
Introduction to Business
2018-19

4. Why profit is important?

Foundation Year Program
WHY PROFIT IS IMPORTANT?
Introduction to Business
2018-19

5. Income statement

Foundation Year Program
INCOME STATEMENT
• Is it higher or lower than last year?
• If lower, why is profit falling?
• Is it higher or lower than other similar businesses?
Industrywide benchmark?
• If lower, what can we do to become as profitable as
others, achieving the benchmark?
If the business is making a loss, managers will want to
ask themselves:
• Is this short term- or long-term problem?
• Are other similar businesses also making losses?
• What decisions can we take to turn losses into profits?
Introduction to Business
2018-19

6. Income statement

Foundation Year Program
INCOME STATEMENT
Gross profit: sale revenue – cost of the goods
• Gross profit does not make any allowance for
overhead (fixed) costs or expenses
• Costs of goods sold is not necessarily the same as the
total value of goods bought by the business
COGS: materials, manufacturing and direct labor
Introduction to Business
2018-19

7. Income statement

Foundation Year Program
INCOME STATEMENT
Introduction to Business
2018-19

8. Net profit

Foundation Year Program
NET PROFIT
Introduction to Business
2018-19

9.

Foundation Year Program
COGS: materials, manufacturing and direct labor
Introduction to Business
2018-19

10. Net Retained profit

Foundation Year Program
NET RETAINED PROFIT
Introduction to Business
2018-19

11. Income statement

Foundation Year Program
INCOME STATEMENT
Introduction to Business
2018-19

12. Learning outcomes – Balance Sheet

Foundation Year Program
LEARNING OUTCOMES – BALANCE SHEET
• The main elements of a balance sheet
• The main classification of assets and liabilities
• How to use examples to illustrate these
classification show to interpret simple balance
sheets and make inferences from them
Introduction to Business
2018-19

13. The concept of Equity

Foundation Year Program
THE CONCEPT OF EQUITY
Introduction to Business
2018-19

14. Balance sheet (BS)

Foundation Year Program
BALANCE SHEET (BS)
• Income statement, not much information about the
worth of the business. Balance sheet record the value
or worth of the business at one moment.
• Assets: items of value owned by the business.
– Fixed assets: land, building, vehicles, equipment for
more than year. Except land all depreciate
– Intangible assets: do not exist physically, brand,
copy rights.
– Current assets: cash, inventories (stock), account
receivables (customers who owe money to the
business) for short period.
Introduction to Business
2018-19

15. Balance sheet (BS)

Foundation Year Program
BALANCE SHEET (BS)
• Liabilities: are the items owed by the business.
– Non-current liabilities- long term borrowing (do not
have to be paid within one year.
– Current liabilities-amount owed by the business to
be paid within one year (bank overdraft, supplier or
creditor)