Roles of statement in evaluating a company’s performance and financial position

CFA, FRA 0

Statement of financial position or balance sheet (2)

  • Report firm’s financial position at a point of time 
  • Consist of 3 elements 
    • Assets (3)
      • Resource controlled by the firm
    • Liability (4)
      • Amount owed to lenders
    • Owner’s equity (5)
      • Net asset of entity after deducting liabilities 
  • Accounting equation
    • Assets = liability + equity  

Statement of comprehensive income (6)

  • Report all changes in equity, except for shareholder transaction
  • Income statement (7)
    • Financial performance of the firm over period of time
    • Include: 
      • Revenue 
        • inflows from producing, delivering goods, rendering service…
      • Expense 
        • Outflows from  from producing, delivering goods, rendering service…
      • Other income
        • Gains that may or may not arise in the ordinary course of business
  • Income statement and statement of comprehensive income can be presented separately

Statement of changes in equity (8)

  • Report amounts and sources of change in equity investor’s investment in the firm over a period of time.

Statement of cash flow (9)

  • Report cash receipts and payment. 
  • Are classified as 
    •  Operating cash flows 
      • Cash effects of transaction involve normal business of the firm 
    • Investing cash flows 
      • From acquisition of sales of property, plant, equipment, subsidiary, segment, security,… 
    • Financing cash flows 
      • From issuance or retirement of the firm’s debt and equity
        • Dividend paid to stockholders
  • Difference between statement of cash flow and income statement
    • Statement of cash flow: 
      • Report source of company cash and its use of cash over specific time period
    • Income statement 
      • Measure company’s financial performance
        • Revenues 
        • Expenses
        • Profits
        • Losses 
    • Linked by net profit