Prior to this course, I would rely completely on the Financial Consultants remark on the position of our company; with the recent exposure and learning at LBS, I have a better understanding of financial statements and can tell if an organization is doing well financially. I can now ask the accountants the right questions on grey areas even before the auditors arrive. Before I dive into sharing a few key learning points from this course; below are the components of a typical financial statement.
- Statement of Financial Position: This is also known as the balance sheet of a company and it tells the financial status of the company, it is usually prepared on the last day of the accounting period. It is measured with 3 component; assets, Liability and Owner’s Equity.
- Statement of Profit and Loss (Income Statement): Whilst the balance sheet shows the financial position of a company, income statement shows the financial performance of the company for an accounting period. Income has many modifiers: Operating income, Income before tax and net income.
- Statement of Changes in Equity: This statement shows
- Shared Capital (Investors portion of the company or business)
- Retained Earnings (The portion earned by the entity during the course of doing business) for example dividend paid to investors.
- Statement of Cash Flow: This explains the reason for any change in a company’s cash flow during the accounting period.
Five Key Learning Points
- Unmeasured Value: Some items of value does not appear in the balance sheet, such as the considerable value the CEO ( Chief Executive Officer) brings as a result of his or her wealth of experience
- That the basis for changes in equity Changes are; changes in owners contributed capital and changes in retained earnings. Contributed capital increases if investors make more contributions; both old and new investors and reduces if the company repurchases and of its outstanding stock. While the retained earning changes if the company earns revenue, incurs expenses or pay out dividend.
- Revenue Reserve: Profit not shared goes back to increase the share capital of the owners.
- Commercial Debt and Financial Debt: Commercial debts are debts arisen from goods and services bought by the company while Financial Debt are debt gotten from Banks and Money Lenders
- Cash flow: cash is very important in running any organization. Lack of profit does not kill a company, its lack of cash that kills a company. Cash can be gotten from different sources if a company is making a loss, this usually built on reputation and goodwill of the company.
