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  1. business-and-its-environment

    enterprise
    6 主题
  2. business-structure
    6 主题
  3. size-of-business
    3 主题
  4. business-objectives
    3 主题
  5. stakeholders-in-a-business
    2 主题
  6. external-influences-on-business
    12 主题
  7. business-strategy
    10 主题
  8. human-resource-management
    human-resource-management-hrm
    8 主题
  9. motivation
    4 主题
  10. management
    2 主题
  11. organisational-structure
    5 主题
  12. business-communication
    5 主题
  13. leadership
    2 主题
  14. human-resource-strategy
    3 主题
  15. marketing
    the-nature-of-marketing
    7 主题
  16. market-research
    3 主题
  17. the-marketing-mix
    6 主题
  18. marketing-analysis
    5 主题
  19. marketing-strategy
    3 主题
  20. operations-management
    the-nature-of-operations
    3 主题
  21. inventory-management
    2 主题
  22. capacity-utilisation-and-outsourcing
    1 主题
  23. location-and-scale
    2 主题
  24. quality-management
    1 主题
  25. operations-strategy
    4 主题
  26. finance-and-accounting
    business-finance
    2 主题
  27. sources-of-finance
    3 主题
  28. forecasting-and-managing-cash-flows
    1 主题
  29. costs
    4 主题
  30. budgets
    1 主题
  31. financial-statements
    4 主题
  32. analysing-published-accounts
    6 主题
  33. investment-appraisal
    2 主题
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An introduction to financial statements

  • Financial statements can be used to help a business determine how successful it has been in achieving its objectives over a given period of time

  • Stakeholders can use financial statements to answer a range of questions

Stakeholder use of financial accounts

Flowchart illustrating stakeholders' questions about financial accounts: government, shareholders, managers, employees, suppliers, and customers.
Financial accounts can help stakeholders answer a range of questions

  • At the end of the financial year, companies must produce a set of financial statements that include two key documents

    • The statement of profit or loss shows the revenue earned, costs incurred and profit (or loss) made by the company over the previous year

    • The statement of financial position shows the assets owned, liabilities owed and net worth of the business at a particular point in time (usually the last day of the accounting period)

  • These financial statements must be submitted to the relevant government agency and can usually be viewed by any interested party

  • Sole traders and partnerships also commonly produce these documents in order to assess their performance

The Annual Report

  • Companies compile financial statements in a larger document called the Annual Report

    • Public limited companies publish very detailed, professionally designed documents

  • Along with the financial statements, the Annual Report also usually contains 

    • A letter from the chairman or board of directors as well as a statement from the CEO

    • A current profile of the company, including core objectives, recent successes and future plans

    • An overview of corporate social responsibility strategies

    • Other financial documents, such as a cash flow statement

    • Details of key personnel, including remuneration of senior managers and changes to the board of directors

    • Shares and dividends issued

    • The appointed auditor‘s report

Stakeholder use of the Annual Report

Stakeholder

Use of the Annual Report

Directors and managers

  • Assess business performance over a specific period of time

  • Compare performance to previous periods

  • Budgeting and target-setting for departments and individuals

  • Supporting strategic decision-making

Employees

  • Determining the stability of the business to establish whether their jobs are secure

  • Discovering future business plans to support their career decisions

  • Supporting a claim for increased pay

Shareholders

  • Assess the return on their investment in the company

  • Assess business performance to determine potential for continued investment

  • Understand the level of dividend they will receive

Government

  • Determine the amount of tax a company is required to pay

  • Assess business stability to determine its ability to continue to employ workers

  • Ensure that legal requirements are met in the compilation of accounts 

Suppliers

  • Assess the the liquidity of a company to determine whether it is able to pay for goods it orders

  • Determine whether the company is creditworthy

Local community

  • Assess business stability to determine its ability to continue to employ workers

  • Investigate the company’s commitment to locally-relevant aspects of corporate social responsibility, such as minimising pollution

Examiner Tips and Tricks

The focus of this topic is the ways in which stakeholders use financial information from the financial accounts and annual report. Don’t worry too much about remembering the structure and contents of financial statements.

Limitations of the Annual Report

1. For investors or shareholders

  • The Annual Report is outdated and backward-looking

    • It reflects past performance, often months old, which may not help investors make timely decisions

  • Biased presentation

    • Information is often selected to present the business in the best possible light, possibly camouflaging financial weaknesses or risks

2. For employees

  • The Annual Report lacks detail on job security or working conditions

    • The report doesn’t reveal whether jobs are at risk, or what it’s like to work in the business

  • It lacks employee perspective

    • It reflects only senior management’s view, with no insight into morale, satisfaction, or staff concerns

3. For suppliers

  • The Annual Report provides little insight into payment reliability

    • Reports don’t show if the business pays its suppliers fairly or on time

  • Unclear future demand

    • Suppliers cannot rely on the report to understand future purchasing levels or changes in sourcing strategy