Value of Financial Statements for Entrepreneurs

A financial statement

A financial statement is a report that details an enterprise’s financial performance, status, and actions over a certain time period. This paper will examine the financial statements and income statements of DO & CO Restaurants & Catering for the fiscal year ending March 31, 2009.

The most striking data for the fiscal year ended March 31, 2009

The most striking data for the fiscal year ended March 31, 2009 is the Sales. They made 387,775 in sales (TEUR). The operating income was 8,607 (TEUR) for the year, while the income tax was 3,488. (TEUR). They considered a minority shareholding of 3,263 because this was a consolidated income statement (TEUR). The minority stake arose as a result of their branches’ financial activity. Therefore, they applied group account, which significantly affected the structure of their financial statement. The company’s net income for the period ended 31st March 2009 was 8,835 (TEUR); profit before taxes. The net income is obtained by deducting the expenses from the gross income from trading activities and other incomes.

Financial statements are connected to each other

Financial statements are connected to each other since the information contained in one statement affects the information in another statement. For instance, the figure for depreciation of tangible assets in the income statement is used in the calculation of the net book value of the tangible assets that is shown on the balance sheet. Also, the adjustments made to expenses like prepayments or accruals in the income statements will appear in the balance sheet as current assets and current liabilities respectively. These provisions will also appear in the statement of cash flow. The net profit from the income statement is used in adjusting the capital for the business, since net profit increases the capital for the business, while drawings reduce the capital. The net profit before taxes is also used in the statement of cash flow.

Financial statements are important to various parties

Financial statements are important to various parties, who have a stake in business. One of these stakeholders is the owner of the business, the entrepreneur. He needs financial information for making decisions. Since the entrepreneur invests his money in the business, he needs to know whether the business is performing, or whether they should close the business. The financial statements provide diverse information that can help the entrepreneur manage their finances. The typically used financial statements include the income statement, the balance sheet, and the statement of cash flows.

The income statement

The income statement shows how the business has performed over a given period, referred to as the financial year or the accounting period. The critical information provided in the income statement is the net income (profit) for the accounting period. It would show the entrepreneur if the business performed well from the previous period by comparing the income statements of the current financial period with the previous income statements. The income statement contains information regarding the expenses incurred over the accounting period, and these are important as they will indicate to the entrepreneur the areas where funds were spent and the sources of income.

The balance sheet

The balance sheet is a statement that shows the financial position of the business as at a particular date. Its main essence is to show the assets and liabilities of the business. These two must balance so that the business’s financial position is affirmative. The balance sheet also serves to show the entrepreneur the working capital. Working capital is the amount of money required for the day to day running of the business. The entrepreneur will use working capital to purchase stock, pay salaries and the daily expenditures incurred in the business. The balance sheet also shows the amount of capital invested in the business; the funding structure and ownership of the business. It helps potential investors and buyers to decide whether to invest in the business or to buy the business.

The statement of cash flows

The statement of cash flows records the money that is moving in and out of the business. The money that is coming into the business is referred to as the cash inflows and the money moving out - is the cash outflows. The entrepreneur will be interested in knowing how money coming into the business was spent, and where the majority of cash coming into the business comes from, so that they can capitalize on that particular item of business. The information shown in the statement of cash flow is obtained from both the income statement and the statement of financial position. Therefore, all the three statements are important and relevant to the entrepreneur and various business stakeholders.

References

Fillable Online Annual Financial Report - DO & CO Restaurants & Catering Retrieved from https://www.pdffiller.com/79273895--Annual-Financial-Report-DO-amp-CO-Restaurants-amp-Catering-AG-

Jim. (2013). Value of Financial Statements for Entrepreneurs. Retrieved from http://www.firstbusinesspartners.com/value-of-financial-statements-for-entrepreneurs/