UNIVERSITY OF BLANTYRE SYNOD
FACULTY OF COMMERCE
Intellectual kings
Thom asiki
PAUL MWALE
CHRISTOPHER WALLO
FINANCIAL MANAGEMENT GROUP ASSIGNMENTS
Financial Statements
What is a Financial Statement?
A financial statement is a quantitative way of showing how a company is doing.
Three different ways of representing the financial state of a company:
1. Cash Management (can the company meet its obligations?)
2. Profitability (Is it making money?) - the income statement
3. Assets versus Liabilities (what is the value of the company? Who owns what?)
- the balance sheet
Each one of these questions is answered by our Financial Statements.
The Big Three

Cash Flow Statements
 These
answer the important managerial question “do I
have enough cash to run my business”

Income Statements
 This
is the financial sheet that tells you if your company
is profitable or not.

Balance Sheets
 How
much debt do I have? How large are my assets?
This sheet tells you the answer to these questions.
What are Revenues?

Sales

Interest from firm’s investments (e.g., a company savings account)

Royalty and Licensing payments for appropriate use of firm’s
intellectual property
Another source of cash inflow, but not a revenue is the cash the firm
receives from borrowing money.
What are Expenses?
There are two types of expenses:
FIXED COSTS
and
VARIABLE COSTS
Fixed Costs

Rent payments

Salaried employees

Capital Investments and (some) maintenance

Utilities (phone, water, electric, etc)

Insurance

Taxes (on property, plant, and equipment)

Advertising (*)

Others things that do not depend on number of units produced.
Variable Costs

Materials Cost

Supplies

Production Wages

Outside / Contracted labor

Advertising (*)

Sales Commissions / Distribution Costs

Equipment Maintenance

Other things that depend on the number of units produced (e.g.
royalties paid)
Balance Sheets

Unlike Cash-Flow and Income Statements, Balance Sheets lists
ASSETS and LIABILITIES

Examples of Assets include:

Land and Capital Equipment less accrued depreciation

Intellectual Property (if purchased)

Cash on Hand (which is equal to the year end Cumulative Cash
Balance)

Accounts Receivable

Inventory

Retained Earnings from Previous Years
Balance Sheets (cont.)


Examples of Liabilities include:

Short Term Debt (loans)

Long Term Debt (bond issues, etc)

Accounts Payable

Interest Payable

Taxes Payable
The difference between Assets and Liabilities is your EQUITY
IMPORTANCE OF FINANCIAL STATEMENTS

Cut unnecessary costs. Being able to see your company’s expenses line by line on both the
income and cash flow statements can highlight areas where its possible to cut costs.

Drive team motivation. When you consider using your company’s financial statements as tools to
motivate and engage your team. The income statement can show how your employees’ projects
positively impacted the company’s revenue, which could boost their performance and drive.

Private companies frequently require outside funds to scale their business. When securing lines of
credit for working capital and construction loans, lenders require that you provide financial
statements to help so they can judge whether loaning the funds is a wise decision. Likewise,
investors also need them to learn how owners are using their current funds and help them decide
if choosing investing in your business over another is the right move.
IMPORTANCE OF FINANCIAL STATEMENTS

Financial statements helps all stakeholders, including management, investors,
financial analysts, etc. to evaluate and make suitable economic decisions by
comparing past and current performance and therefore, predict future
performance and growth of the company.

Financial statements are used within a business by owners, managers and board
members to make strategic and operational decisions. The statements summarize
underlying transactions and account balances to show both the state of the
business at point in time and the business activity that has occurred within the
period.

Public companies-those traded on a stock exchange are required to publish their
financial statements so investors and prospective investors can understand how
the company uses its resources.
IMPORTANCE OF CASH FLOW STATEMENT
 Provides the details where the money is spent. There additional payments that the
company makes and are not reflected in the profit and loss statement. In contrast,
the same is present in the cash flow statement.

Revealing the cash planning results. It helps the company analyse the extent to
which the cash planning of the company became successful as the actual results
can be compared with the projected statement of the cash flow statement.

Short term planning. The cash flow statement is considered useful and vital tool
for the company’s management for short planning and keeping control of cash.
Cash flow statement helps the financial manager in projecting the cash flow
shortly by using the past data of the cash flows and outflows.

Long term planning. Cash flow statement helps the management make long- term
planning of the cash. The company must make long term financial planning as the
growth of the company is dependent on that, thus it reveals vital changes that are
required for company’s financial positioning and helps the management prioritize
business crucial activities.
Financial
management
FUNDAMENTALS REQUIRED WHEN PRESENTING
FINANCIAL STATEMENTS
Financial Statements

Provides clear picture of financial health and performance any
business or organization.

Presentation is complex and crucial, understating financial
statements is vital for accuracy and usefulness
Financial statements Cont’d
Generally Accepted Accounting
Principles (GAAP)
Balance Sheet
Income Statement
Cash Flow Statement
Generally Accepted Accounting
Principles (GAAP)

GAAP is a set of standards and guidelines that govern financial
accounting and reporting

By following GAAP, companies can ensure that their financial
statements are accurate, consistent, and comparable. Refer to
Financial Accounting: Tools for Business Decision Making, GAAP
provides a framework for preparing financial statements that are
useful to investors, creditors, and other stakeholders (Kimmel,
Weygandt, & Kieso, 2021).
Balance Sheet

A balance sheet is a snapshot of a company's financial position at a
specific point in time, detailing its assets, liabilities, and equity.

Financial Accounting: Information for Decisions, the balance sheet
provides valuable information on a company's liquidity, solvency,
and financial flexibility (Ingram, Albright, & Hill, 2021).
Income Statement

An income statement details a company's revenue, expenses, and
net income or loss over a specified period.

Financial Accounting: The Impact on Decision Makers, explains that
“the income statement is critical in evaluating a company's
profitability and financial performance” (Porter & Norton, 2021)
Cash Flow Statement

Cash flow statement details a company's cash inflows and outflows
over a specified period.

Financial Accounting: A Critical Approach, explains that the cash
flow statement provides critical information on a company's ability
to generate cash and its ability to meet its financial obligations
(Juchau & Flanagan, 2021).
Conclusion

Presenting financial statements involves adhering to Generally
Accepted Accounting Principles, preparing a balance sheet,
income statement, and cash flow statement.

Companies can provide a clear picture of their financial health and
performance. Provision of detailed explanations of these
fundamentals are excellent resources for further understanding.
References

Ingram, R. W., Albright, T. L., & Hill, C. W. L. (2021). Financial
accounting: Information for decisions. Cengage Learning.

Juchau, R., & Flanagan, J. (2021). Financial accounting: A critical
approach. Oxford University Press.

Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2021). Financial
accounting: Tools for business decision making. John Wiley & Sons.

Porter, G. A., & Norton, C. L. (2021). Financial accounting: The
impact on decision makers. Cengage Learning.