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Of What Use Is Information Expected To Be Found In A Set Of Published Annual Report And Accounts To Investors/Shareholders ?

1070 words - 4 pages

Although P&L Accounts might differ in Format, the content is expected to address the same goal, whether costs are analyzed by type of operation (Format 1) or by type of expenditure (Format 2) 1.As measurement of profit is often identified as the most important function of financial accounting, the Profit & Loss Account is of major importance to investors.Hard facts and figures presented here, the turnover (or previously “sales”) of the year in question, together with the expenditure, other operating and investment income make up the heart of the financial statement, informing the shareholder about the transactions and activities the company and all its businesses was occupied with in the period in question. Although this does not necessarily say too much about the future, it is fundamental in any decision to invest or not. It can be argued that it gives insight into the performance of the business in numerical form, it reports past events and actions which (as certified by the auditors statement) should provide a fair and accurate view – more than a prediction or forecast, a normative statement could provide.The eye of the shareholder will probably first set on figures such as EPS (earnings per share) and Dividend per Share, as this is what the average small scale investor is primarily concerned with. If these figures do not satisfy the expectations of a shareholders and explanation can not be found directly in the Profit and Loss Account, the notes accompanying it, will give more insight (e.g. Transfers and proposed Transfers to and from reserves etc.)The Balance SheetAs a Statement of Financial Position, the balance sheet provides the investor with insight into the Assets and Liabilities the Company and all its businesses own and owe. This is crucial for investment decisions, as the form and location of assets strongly influences the level of volatility of an invested sum, the future prospects it might generate for the shareholder. Also, it gives an some idea about the outlook of a company - interested investor might not be willing to commit if the outlook for possible returns (in the form of dividends or increase in value of shares) is fragile due to towering liabilities and insecure assets.Cash Flow StatementThe Cash flow statement is for the investor certainly a necessary part in any set of published accounts, as it can clarify deceiving numbers obtained from the Profit and Loss Account.Since it shows what cash has been generated, and where it went, it illuminates the financial operations of businesses. Investors equipped with experince and foresight will not be convinced purely by strong profits. Poor management of cash flow can result in poor performance of a company as a whole due to liquidity problems – a situation the investor will want to omit in any case. Even though, as with the Profit and Loss Account, the cash flow statements only shows how cash was handled in the past period in question , it gives an...

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