Financial Performance And Liquidity Of A Company

2378 Words Mar 23rd, 2015 10 Pages
Financial Statements are used to record and provide information on the financial activities of a business, person or entity, this information is used by a wide range of entities in order to make economic decisions (Reference). These reports quantify the financial strength, performance and liquidity of a company and are intended to be understandable to audiences who have an adequate knowledge of economics and accounting. To acquire a better knowledge of financial statements it is important to understand why they are put together in the first place. From a company’s financial statement various information is provided in order to allow investors and creditors to evaluate a company’s financial performance, with different financial statement focusing on different areas of financial performance. There are four main types of financial statements, these are; the Income Statement which reports the company’s financial performance in terms of net profit or loss over a specified period of time. The Statement of Financial Position which illustrates the financial position of an entity at any given date and consists of the following three components; Assets, Liabilities and Equity. The Cash Flow Statement that shows movements in cash and bank balances over a certain time period, mainly focusing around two main elements; cash inflows and cash outflows. The Statement of Changes in Equity that details the movement of an owner’s equity over a specified time period. The following diagram…
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