Interpreting financial information

Business accounts are produced to meet the needs of their users. Typical users and the use they make of accounts is shown below:

Shareholders -to check on quality of direction of company, as well as profitability, solvency, value of company and other signs of health.

Employees - to check on job security and scope for wage and benefit increases.

Suppliers - to check that a company is generating the cash to be able to pay up.

Inland Revenue - for calculations of Corporation tax.

There are three main financial statements that are produced by company accountants. These are:

1. The Balance Sheet setting out the financial position of the company at a particular moment in time e.g. the year end.

2. The Profit and Loss Account showing how the profit or loss of the business has been generated.

3. A cash flow statement setting out the cash inflows and outflows to the business during a particular period of time