0% found this document useful (0 votes)
11 views30 pages

Finman Module 2 Part 1

The document provides an overview of financial statements, detailing their purpose in reporting a company's performance, financial condition, and the insights they offer to various stakeholders. It outlines the general objectives of financial statements, including providing information for economic decisions, financial positions, performance, and changes in financial position. Additionally, it discusses the demand for financial accounting information from different users such as managers, investors, creditors, and regulatory agencies, as well as the benefits and costs of disclosure.

Uploaded by

Jhoaine Singson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
11 views30 pages

Finman Module 2 Part 1

The document provides an overview of financial statements, detailing their purpose in reporting a company's performance, financial condition, and the insights they offer to various stakeholders. It outlines the general objectives of financial statements, including providing information for economic decisions, financial positions, performance, and changes in financial position. Additionally, it discusses the demand for financial accounting information from different users such as managers, investors, creditors, and regulatory agencies, as well as the benefits and costs of disclosure.

Uploaded by

Jhoaine Singson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 30

MODULE 2

Understanding Financial
Statements

Kate Angel V. Elleso, CPA


WHAT ARE FINANCIAL STATEMENTS?
Financial Statements

HOW BUSINESS ACTIVITIES ARE REPORTED

• FS report on a company's performance and financial condition and reveal


executive management's privileged information and insights
• FS serve the need of different users
• Involves application of accounting standards to produce financial
statement that provide insight of the business activities of the company
under analysis
• All companies withuor any exception, PLAN business activities, FINANCE
business activities, INVEST in those activities, ENGAGE in operating
activities
Financial Statements

GENERAL OBJECTIVES OF FINANCIAL STATEMENTS

• Providing Information for Economic Decisions


• Providing Information about Financial positions
• Providing Information about performance of an enterprise
• providing information about changes in financial position
Financial Statements

PROVIDING INFORMATION FOR ECONOMIC DECISIONS

• Economic decisions are taken by users that require an evaluation of the


ability of an enterprise to generate cash and cash equivalents, and timing
and certainty of their generation
• Determines the capacity of enterprise
Financial Statements

PROVIDING INFORMATION ABOUT FINANCIAL POSITION

• Affected by economic resources:

1. Economics resources controlled by the enterprise and its capacity in the


past to modify these resources is useful in predicting the ability of the
enterprise to generate cash and cash equivalents in the future
2. financial structure is useful in predicting future borrowing needs and how
future profits and cash flows will be distributed among those with a interest
in the enterprise
3. Useful in predicting how successful the enterprise is likely to be in raising
further finance
Financial Statements

4. Information about liquidity and solvency is useful in predicting the ability


of the enterprise to meet the financial commitments as they fall due
Financial Statements

PROVIDING INFORMATION ABOUT PERFORMANCE OF AN ENTERPRISE

• it provides information about the perfroamce and in particular it's


profitability, which is required in order to assess potential changes in the
economic resources that are likely to control the future.
• Information can also be used in forming judgment about the effectiveness
with which the enterprise might employ additional resources
Financial Statements

PROVIDING INFORMATION ABOUT CHANGES IN FINANCIAL POSITION

• provide information concerning changes in the financial position of an


enterpise, which is useful in order to assess its investing, financing, and
operating activities during the reporting period
Demand for financial
accounting
information
Demand for Financial Accounting
Information

• decision maker and other stakeholders demand information on the


company's past and prospective returns and risks to facilitate efficient
contracting and risk-sharing
Demand for Financial Accounting
Information

• Managers and Employees


• Investors and Analysts
• Creditors and Suppliers
• Shareholders and Directors
• Regulatory and tax agencies
• Customers and Potential Strategic partners
• Other decision makers
Demand for Financial Accounting
Information

Managers and Employees

• need accounting information on the financial condition, profitability and


prospects of their companies as well as comparative financial information
on competing companies and business opportunities
• financing for company
• disclosure requirements
Demand for Financial Accounting
Information

INVESTORS AND ANALYSTS

• buy or sell equity shares


• expectations about future profitability and ability to generate cash
• predicting companies' future performance
Demand for Financial Accounting
Information

CREDITORS AND SUPPLIERS

• help determine loan terms, loan amounts, interest rates and required
collateral
• establish credit terms and lng-term commitment to supply-chain relations
• monitor and adjust their contractual requirements and environment with a
business firm
Demand for Financial Accounting
Information

SHAREHOLDERS AND DIRECTORS

• to assess it profitability and risks, to evaluate managerial performance


and to help make leadership decisions
Demand for Financial Accounting
Information

REGULATORY AND TAX AGENCIES

• monitor the business firm's compliance with laws, for public proection,
price setting and setting tax and other regulatory policies
Demand for Financial Accounting
Information

CUSTOMERS AND POTENTIAL STRATEGIC PARTNERS

• Evaluate a company's ability to provide products and services as agreed


and to assess the company's reliability and staying power
• to assess fairness of returns on mutual transactions and strategic
alliances
Demand for Financial Accounting
Information

OTHER DECISION MAKERS

• required for varied purposes by other parties from assessing damages for
environmental abuses to making policy decisions involving economics,
social, taxation, and other initiatives
Sources of • Publicly-listed companies
1. Audited annual report which
Information about includes the four financial
statements

Business 2. Unaudited quarterly or interim


reports that include summary
Enterprises version of the four financial
statements and limited
additional disclosure
Benefits of
Disclosure
• extend to a company's capital, labor, input and output markets
Cost of
Disclosure
• Can harm competitive advatages
• can face possible lawsuits when disclosures creates expectations that
eventually are not met
• Disclosure costs due to scrutiny
CONSTRAINTS ON RELEVANT
AND RELIABLE INFORMATION

• Timeliness
• Balance Between Benefit and Cost
• Balance between qualitative characteristics
• True Fair view or fair Presentation
Financial statements
Financial statements
Financial statements
WORKING CAPITAL
• current assets are often called as working capital

NET WORKING CAPITAL


• difference between current assets minus current liabilities

NET OPERATING WORKING CAPITAL


• difference between current assets and non-interest bearing current liabilities
Financial statements
Financial statements
Financial statements
see you
next lesson!

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy