Uses of Financial Statements and Interpretation of Ratios for Investment

This report discusses the uses of financial statements and how to interpret ratios for investment decisions. It also provides advice on investing in Aurora Plc.

Managing Financial
Resources

Contents
INTRODUCTION...........................................................................................................................................4
QUESTION 1.................................................................................................................................................4
Various uses of financial statements and assess the information...........................................................4
 Bridging the gap in management: These statements usually reflect on the efficiency of an
organization. They reveal organization earnings and obligations. They presents how good a
organization has been in making choices. Since stakeholders have exposure to those reports, they can
assess the success of their business. This also helps narrow the gap between administration
deficiencies and stakeholder’s perceptions (Hasan and Habib, 2017)..................................................5
 Use for investors: Investors often use the financial information of an organization
systematically to determine the operations. That allows them to find out how the liquidity of the
business would be in the longer period. Therefore the stronger the financial status of a business, the
growing the expenditure it gets............................................................................................................5
In financial statements are consisting of different types of statements that present actual position and
helps in decision making procedure such as:.......................................................................................5
Balance Sheet: The balance sheet at a particular time a rundown of the business's status on that day.
The balance sheet shows at one particular date the properties, liabilities and equity of the
shareholders. In a way, the balance sheet on that date is an image of the business. Stakeholders and
investors may use the balance sheet to evaluate how organizations fund financial assets and
activities, and existing knowledge about creditors...............................................................................5
Profit & loss statement: This statement presents total income and expenditure of an organization in
particular financial year. Every firm issue their annually income statement, it is also generated on
basis of quarterly and semiannual income statements are also common. The investors are collecting
information from this statement and analysis that for decision making. When business are
conducting all the activities efficiently and manufacturing sufficient profit for fund and for current
practices and growth............................................................................................................................5
The statement of owner capital represents all the activities in regard of investment and withdrawals
from the enterprise in particular period of time. It also reports the present income or loss recorded in
retained earnings (Hubbard and et.al., 2014).......................................................................................5
Cash Flow statement: This statement presents that how well an business entity generate cash to pay
its debt liabilities, fund for operating expenditure and fund investment. It has been categorized into
operating, investing and financing activities. With the help of this statement collect information
about the cash that collect all relevant information..............................................................................5
From the above statements collect all the relevant information that helps to investors and
stakeholders to collect all the relevant information in regard of business. On the basis of these
information the take decision in regard of further investment.............................................................6
Comparison of statements for different types of organisation.......................................................6

Statement of financial position............................................................................................................6
Income statement.................................................................................................................................6
Cash flow statement.............................................................................................................................6
Statement of changes in equity............................................................................................................6
This statement also known as balance sheet, financial position of an entity that prepare by business
to present actual position in particular financial year...........................................................................6
It is called as profit and loss statement; report the business financial performance in order to
calculate net profit and loss in certain period of time..........................................................................6
This statement shows the cash as well as bank balance in specific financial year...............................6
It is called as statement of retained earnings and provide all depth information of owners equity over
a period................................................................................................................................................6
It has been categorized into three elements such as: Assets, liabilities and equity...............................6
It has been classified into two aspects like, income as well as expenses..............................................6
The movement categorized into three activities like: operating, investing and financing activities.....6
This movement divided into following components like, dividend payments, share capital, gain and
losses...................................................................................................................................................6
QUESTION 2..............................................................................................................................................6
Interpret financial statements using appropriate ratios and comparison both internal and external.........6
QUESTION 3..............................................................................................................................................7
Advising to James for investment............................................................................................................7
CONCLUSION...........................................................................................................................................8
REFERENCES................................................................................................................................................9

INTRODUCTION
Financial resources can be identified as the funds that all organizations need to
effectively carry out all operating exercises. If a corporation does not have adequate resources to
carry out business processes, it would find it tough to tap into other industry. These sources are
utilized by an organization according to their requirement and conduct all the activities (Anselmi,
Lagarde and Hanson, 2014). This report based on the Aurora Plc in which James wants to invest
amount. The company has been operated a chain of departmental store into London and Dubai.
The company have current market price of ordinary share is 80P. In this report consist of
different uses of financial statements and collect relevant information. Along with utilize this
information for comparison of internal and external. Moreover, provide advice with reason for
investment in Aurora Plc.
QUESTION 1
Various uses of financial statements and assess the information
Financial statements are documents in writing which express a company's operations
interests and quarterly reports. Government departments, auditors, companies, etc. also audit
financial reports to ensure compliance and for revenue, funding or investment reasons. These
statements are preparing by the organization at the end of financial year. It is mainly prepared by
the business entity to present actual position and financial performance at a point in time. The
general purpose of financial statements to prepare balance sheet, profit & loss statement, cash
flow statement and owner’s equity. These statements are providing users to outside of an
organization such as, creditors & investors, detailed information in regard of financial situation
of an organisation. Those companies are trading in public require to present their statements in
front of stakeholders because it helps them in decision making procedure.
Financial statements are main sources that use by different stakeholders for decision
making. That's why financial accounting and accounting puts certain great importance on the
reliability, quality and significance of the financial statements details. Occasionally, the data
needs of specific decision taking vary. A decision-maker needs to evaluate different percentages,
forecasts, liquidity and differences for a successful financial planning. An operation and
volatility ratios, capital gearing ratios, productivity and output ratios are the key factors
recognized by a decision maker. A decision-maker requires to conduct a thorough review of
these factors, a reliable forecast and a competent summary of the results of the sector (Guerra,
Magni and Stefanini, 2014).. Key resources like:

Cash flow: It is an essential tool that looks at the potential future of cash outflow and sales. The
organizations want to see what it would need to lend to finance the expense.
Budgeting is an essential method by which an entity makes its preparations for the future. This
allows a company prepares where expenses will be incurred, and where income will originate
from.
Variances: It is explaining the difference rather than what was expected and what actually
occurred. The explanations demonstrate the variation that was to be found from the differences.
Various uses of financial statements: A company's financial reports serve many important
roles. First of all, they represent the company's actual situation. It helps to take vital financial
details as well. These are used by many individuals, from stakeholders or lenders to
administration and borrowers.
 Bridging the gap in management: These statements usually reflect on the efficiency of an
organization. They reveal organization earnings and obligations. They presents how good
a organization has been in making choices. Since stakeholders have exposure to those
reports, they can assess the success of their business. This also helps narrow the gap
between administration deficiencies and stakeholder’s perceptions (Hasan and Habib,
2017).
 Use for investors: Investors often use the financial information of an organization
systematically to determine the operations. That allows them to find out how the liquidity
of the business would be in the longer period. Therefore the stronger the financial status
of a business, the growing the expenditure it gets.
In financial statements are consisting of different types of statements that present actual position
and helps in decision making procedure such as:
Balance Sheet: The balance sheet at a particular time a rundown of the business's status
on that day. The balance sheet shows at one particular date the properties, liabilities and equity of
the shareholders. In a way, the balance sheet on that date is an image of the business.
Stakeholders and investors may use the balance sheet to evaluate how organizations fund
financial assets and activities, and existing knowledge about creditors.
Profit & loss statement: This statement presents total income and expenditure of an
organization in particular financial year. Every firm issue their annually income statement, it is
also generated on basis of quarterly and semiannual income statements are also common. The
investors are collecting information from this statement and analysis that for decision making.
When business are conducting all the activities efficiently and manufacturing sufficient profit for
fund and for current practices and growth.
The statement of owner capital represents all the activities in regard of investment and
withdrawals from the enterprise in particular period of time. It also reports the present income or
loss recorded in retained earnings (Hubbard and et.al., 2014).

Cash Flow statement: This statement presents that how well an business entity generate
cash to pay its debt liabilities, fund for operating expenditure and fund investment. It has been
categorized into operating, investing and financing activities. With the help of this statement
collect information about the cash that collect all relevant information.
From the above statements collect all the relevant information that helps to investors and
stakeholders to collect all the relevant information in regard of business. On the basis of these
information the take decision in regard of further investment.
Comparison of statements for different types of organisation
Statement of financial
position
Income statement Cash flow statement Statement of changes
in equity
This statement also
known as balance
sheet, financial
position of an entity
that prepare by
business to present
actual position in
particular financial
year.
It is called as profit
and loss statement;
report the business
financial performance
in order to calculate
net profit and loss in
certain period of time.
This statement shows
the cash as well as
bank balance in
specific financial
year.
It is called as
statement of retained
earnings and provide
all depth information
of owners equity over
a period.
It has been
categorized into three
elements such as:
Assets, liabilities and
equity.
It has been classified
into two aspects like,
income as well as
expenses.
The movement
categorized into three
activities like:
operating, investing
and financing
activities.
This movement
divided into following
components like,
dividend payments,
share capital, gain and
losses.
QUESTION 2
Interpret financial statements using appropriate ratios and comparison both internal and
external
Ratio analysis is defined as comparison of line items in the financial statements of an
entity. It is mainly utilized to analysis a number of issues with particular organization like its
liquidity, performance of operations and profitability. These trend lines may be utilized to
forecast the particular guidance of future ratio performance (Karltorp, 2016). There are
calculated f different types of ratio such as:
 Gearing ratio = 68.65%
 Earnings per share = 12p
 Dividend per share = 3.75p
 Dividend yield = 6.25%

 Dividend cover = 3.2 times
 Price earnings ratio = 5
Ratios Formulas Calculations
Gearing Total debt/total interest 72.76%
Earnings per share Net income – preferred
dividends/weighted average
share o/s
20p
Dividend per share Annual dividends/No of share 4.15P
Dividend yield Annual dividend/Current
stock price
4.25%
Dividend cover Dividend/Net income 4.1 times
Price/earnings ratio Market value per share/net
income per share
7
From the internal and external ratio analysis it has been analyzed that company have
good position in business along with it provides good dividends to all the investors. These ratios
are presenting that there are different activities. From the above calculations it has been analyzed
that performance of the company was good in outer as compare of inner. All ratios except debt
ratios show the strong performance of the company in outer compared to inner. It's benefited
from the most successful highest level-level administration decisions. The dividend cover and
yield ratios indicate that the company individual's productivity was very strong in 2017
compared with outer. According to investment structure ratios performance of Swipe Wire was a
little bit weak in outer as compare to inner which has resulted in lower profitability. Liquidity
ratios are also showing that performance of the company was very good in outer rather than inner
(Leyman and Vanhoucke, 2016).
QUESTION 3
Advising to James for investment
There are advising to invest their amount in the Aurora plc because they have good
position in the market. There are mentioned different reasons in broad manner such as:
 It has good market position in the market.
 Get growth year by year and provide good return to all the investors.
 It's been determined by evaluating Swipe Wire's actual results that the company uses
inner funding rather than outside resources. It is important for corporations to use existing
obligations in order to save stakeholders 'assets for the potential.
 All the operational activities in systematic manner it is very important for businesses to
arrange sufficient financial resources

 The company has an effective financial resource that helps to conduct all the business
activities efficiently (Osadchy and Akhmetshin, 2015).
 On the basis of these funds they are taking all the effective decision.
 Different types of techniques such as management and financial accounting are used by
businesses to determine their actual position.
 Various ratios such as investing, profitability etc. are used by financial analysts of
business in order to determine performance of company (Žižlavský, 2014).
CONCLUSION
As per the above report it has been analyzed that to operate business require to different
financial resources that help to conduct different types of activities of business. To analysis the
actual position of business prepare different types statements that provide all detailed
information such as, income statement, balance sheet and cash flow statement. There are
comparing these statements to collect all the depth information. Along with analysis ratios
effectively after that compare internal and external ratio in order to analysis properly. At the end
James analysis all the ratio after that provide suggestion of investment with the reason of

REFERENCES
Books and Journals
Anselmi, L., Lagarde, M. and Hanson, K., 2014. Equity in the allocation of public sector
financial resources in low-and middle-income countries: a systematic literature
review. Health policy and planning. 30(4). pp.528-545.
Guerra, M. L., Magni, C. A. and Stefanini, L., 2014. Interval and fuzzy average internal rate of
return for investment appraisal. Fuzzy Sets and Systems. 257. pp.217-241.
Hasan, M. M. and Habib, A., 2017. Corporate life cycle, organizational financial resources and
corporate social responsibility. Journal of Contemporary Accounting & Economics.
13(1). pp.20-36.
Hubbard, R. E. and et.al., 2014. Frailty, financial resources andsubjective well-being in later
life. Archives of gerontology and geriatrics. 58(3). pp.364-369.
Karltorp, K., 2016. Challenges in mobilising financial resources for renewable energy—The
cases of biomass gasification and offshore wind power. Environmental Innovation and
Societal Transitions. 19. pp.96-110.
Leyman, P. and Vanhoucke, M., 2016. Payment models and net present value optimization for
resource-constrained project scheduling. Computers & Industrial Engineering. 91.
pp.139-153.
Osadchy, E. A. and Akhmetshin, E. M., 2015. Development of the financial control system in the
company in crisis. Mediterranean Journal of Social Sciences. 6(5). p.390.
Žižlavský, O., 2014. Net present value approach: method for economic assessment of innovation
projects. Procedia-Social and Behavioral Sciences. 156. pp.506-512.