Uses of Financial Statements and Interpretation of Ratios for Investment

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