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In what way is information about 1)Financial position, 2) Performance, 3) Changes in Financial position Position useful?
1- Like we all know, it tells the story of the company’s affairs, what the company owns in terms of assets and its liabilities. From here we can find out how liquid a company is, is the entity operated with more of internally generated fund or external? etc
2- Performance can give us an insight into how profitable the entity’s operating activity has been in a period. By comparing its turnover figure with total expenses or individual expenses, you then know how much is left for the shareholders.
3- I guess i just have to read that one up.
So hope i was able to give you something meaningful?Changes in financial position tells us “by how much has the company increased / decreased its assets?” This figure of “net assets” represents the capital employed by the company – and therefore the resources available to the directors. This figure ( net assets ) is the basis therefore of the return on capital employed. Looking at it another way, if “profits” were the ONLY consideration in the minds of a company’s directors, what sort of return on that capital are the directors achieving. In the cold light of day, if they are not achieving enough, why bother continuing in business – why not simply sell everything, pay off the creditors, and put the surplus in the ban to earn bank interest?
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