Welcome to my Presentation Session

Welcome to my Presentation SessionTopic: Interpretation of financial statements

Group members name: Md. Abdul Kaium 120106031 Md. Abdullah Reza 120106045

PURPOSES OF FINANCIAL STATEMENTSa) The basic purpose of financial statement is communicate to their interested users, quantitative and objective information are useful in making economic decisions.b) Secondly, financial statements are intended to meet the specialized needs of conscious creditors and investors.c) Thirdly, financial statements are prepared to provide reliable information about the earning of a business enterprise and it ability to operate of profit in future. The users who are interested in this information are generally the investors, creditors, suppliers and employees.d) Fourthly, financial statements are intended to provide the base for tax assessments.e) Fifthly, financial statement are prepare in a way a provide information that is useful in predicting the future earning power of the enterprise.f) Sixthly, financial statements are prepares to provide reliable information about the changes in economic resources.g) Seventhly, financial statements are prepares to provide information about the changes in net resources of the organization that result from profit directed activities.

Limitations of Financial Statements(1) Financial Statements are normally prepared on the basis of accounting principles, conventions and past experiences.(2) Financial Statements emphasize to disclose only monetary facts, i.e., quantitative information(3) Financial Statements disclose only the historical information. It does not consider changes inmoney value, fluctuations of price level etc. Thus, correct forecasting for future is not possible.(4) Influences of personal judgments leads to opportunities for manipulation while preparing of financial statements.

(5) Information disclosed by financial statements based on accounting concepts and conventions. It is unrealistic due to difference in terms and conditions and changes in economic situations.

Analysis and Interpretation of Financial StatementsFinancial Statements :

Financial statements (or financial reports) are formal records of the financial activities of a business, person, or other entity. Financial statements provide an overview of a business or person's financial condition in both short and long term. All the relevant financial information of a business enterprise, presented in a structured manner and in a form easy to understand is called the financial statements

Types of Financial Statements :The four main types of financial statements are:Statement of Financial Position (Balance Sheet)Statement of Activities (Income Statement)Statement of retained earningsStatement of Cash Flows

Statement of Financial Position (Balance Sheet):Statement of Financial Position, also known as the Balance Sheet, presents the financial position of an entity at a given date. It is comprised of the following three elements:1.Assets: Something a business owns or controls (e.g. cash, inventory, plant and machinery, etc.)2.Liabilities: Something a business owes to someone (e.g. creditors, bank loans, etc.)3.Equity: What the business owes to its owners. This represents the amount of capital that remains in the business after its assets are used to pay off its outstanding liabilities. Equity therefore represents the difference between the assets and liabilities.

Statement of Activities (Income Statement):

Income Statement, also known as the Profit and Loss Statement, reports the company's financial performance in terms of net profit or loss over a specified period. Income Statement is composed of the following two elements:1.Income: What the business has earned over a period (e.g. sales revenue, dividend income, etc.)2.Expense: The cost incurred by the business over a period (e.g. salaries and wages, depreciation, rental charges, etc.)Net profit or loss is arrived by deducting expenses from income.

Statement of retained earningsStatement of Changes in Equity, also known as the Statement of Retained Earnings, details the movement in owners' equity over a period. The movement in owners' equity is derived from the following components:Net Profit or loss during the period as reported in the income statementShare capital issued or repaid during the periodDividend paymentsGains or losses recognized directly in equity (e.g. revaluation surpluses)Effects of a change in accounting policy or correction of accounting error

Statement of cash flow

Cash Flow Statement, presents the movement in cash and bank balances over a period. The movement in cash flows is classified into the following segments:Operating Activities: Represents the cash flow from primary activities of a business.Investing Activities: Represents cash flow from the purchase and sale of assets other than inventories (e.g. purchase of a factory plant) Financing Activities: Represents cash flow generated or spent on raising and repaying share capital and debt together with the payments of interest and dividends. THANK YOU