Information disclosure: Financial statements

FINANCIAL Statements are formal records that outline the financial activities of a business. There are four basic types of financial statements:

Statement of Financial Position- presents the assets, liabilities and equity of an entity as at a given date. It is therefore comprised of the following three elements:

◆ Assets are financial resources owned or controlled by the business e.g. cash, inventory, plant and machinery.

◆ Liabilities are financial obligations that a company owes to others such as money owed to suppliers for materials and taxes owed to the Government

◆ Equity is the residual financial resource after a company pays off all of its liabilities. Equity is assets less liabilities.

Statement of Comprehensive Incomeoutlines the company’s financial performance in terms of net profit or loss over a specified period. Net profit or loss is the difference between the business’ expenses and its income

Statement of Cash Flows — presents the movement in an entity’s cash with regards to operating, investing and financing activities over a period of time. These movements are classified into three categories:

◆ Operating activities — cash flows from primary activities of the business.

◆ Investing activities — cash flows from the purchase and sale of assets other than inventories

◆ Financing activities — cash flows generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends.

Statement of Changes in Equity — highlights the movement in owners’ equity over a time period. The movement is derived from the following components:

◆ Net Profit or loss during the period as reported in the Income Statement

◆ Share capital issued or repaid during the period

◆ Dividend payments

◆ Gains or losses recognized directly in equity

Investors are advised to thoroughly analyse financial statements of companies of interest for informed investment decision making.