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Understanding Basic Financial Statements

The document outlines the basic financial statements, including the income statement and balance sheet, which reflect a business's performance and financial position, respectively. It also discusses key performance measurements such as liquidity, solvency, stability, and profitability, which assess a business's ability to meet obligations and manage expenses. Understanding these elements is essential for evaluating a company's financial health.

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25 views13 pages

Understanding Basic Financial Statements

The document outlines the basic financial statements, including the income statement and balance sheet, which reflect a business's performance and financial position, respectively. It also discusses key performance measurements such as liquidity, solvency, stability, and profitability, which assess a business's ability to meet obligations and manage expenses. Understanding these elements is essential for evaluating a company's financial health.

Uploaded by

jm
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

BASIC

FINANCIAL
STATEMENTS

Business Finance
Lesson Objectives
 discuss the basic financial statements
completely;
 enumerate the elements of financial
statements; and
 define measurement level-namely,
liquidity, solvency and stability, and
profitability
INCOME STATEMENT
The income statement shows
the performance of the
business for a given period of
time.
The performance known as
results of operation is primarily
measured in terms of the
income earned through the
BALANCE SHEET
The balance sheet show the
financial position of the
business as of a particular
date.
It presents three elements –
assets,
Assets – liabilities,
the value ofand equity.
what the firm owns
Liabilities – the value of what the firm
owes/debts
Equity – the money invested by company
PERFORMANCE
MEASUREMENTS

Business Finance
LIQUIDITY

It is the ability of the


business to pay its currently
maturing liabilities as they
fall on its due date
LIQUIDITY

Comparing current assets


and current liabilities
assesses liquidity.
SOLVENCY

It is the ability of the


business to pay its
long-term liabilities.
SOLVENCY
Long term creditors are
interested in the solvency of
the business because they are
concerned about receiving
interest payments and
STABILITY

Measures how a
business can survive
in the long run.
PROFITABILITY
 A measure of an
organization's profit
relative to its
expenses.
 This is assessed by the
effective costs control
and efficient utilization

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