Evaluate Financial Performance Using Financial Statements

Evaluate  financial performance of a business. You will need to use an example either from your present employer, or you can use the published financial statements of companies such as British Airways, which are published on the internet.

You will need to:
 1 discuss the main financial statements
These are the annual accounts – the Profit and Loss Account (in some sectors knows as the Operating Statement, or Statement of                     Income and Expenditure) and the Balance Sheet – you need to explain what they contain, their purpose and importance, and who                     makes use of them.
2. compare appropriate formats of financial statements for different types of business
Here you need to describe and compare the formats (structure, content, detail) of the main statements for different businesses – eg Self-        employed, Partnership, Limited Company, Public Limited Company, Charity, Local Authority, State Owned.
3 interpret financial statements using appropriate ratios and comparisons, both internal and external
You will need to analyse at least 3 continuous years of the Profit and Loss Account and Balance Sheet (or equivalents) of your own                      organisation or an organisation that you can research (BA can be used, or a different organisation but only with your Tutor’s
approval) – to identify a range of ratios and trends, and then to comment on those.

Comparison Ratios – such as Gross Profit to Sales of 1.25:1 – Net Profit to Sales 0.25:1
Trend Ratios such as the ratio of Net Profit to Sales, over each of a series of years (3 years is universally accepted as the minimum needed to identify a trend )  Internal ratios are literally that – ratios comparing figures related to the organisation’s own accounts only.
External ratios are either comparisons between that organisation and a different one – eg BA with Virgin Air – or compared with industry standards (most industries have “standard” ratios which are considered to be “safe” ones to aim for/achieve).
*for an example of financial statement ratios, go to www.iagshares.com – then to the Economic and Financial Information pages

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