Understanding the Financial Statements
Gaining an Overview of Organisations Performance

The first part of this module is intended to give you an understanding of financial reports. You may find that this is difficult at first but by examining financial statements from a variety of companies you will soon gain an understanding of these and how to use them to assess an organisations performance. Before we progress with the interpretation let us spend some time exploring the information contained in an organisations Annual report and Accounts using Bright and Glossy’s Annual report and Accounts given at the end of the student guide.

You must never lose sight of the fact that accounts are kept in order that they may assist the proprietor or manager of the business. If the accounts, or any part of them, have no meaning to such individuals then they can have little meaning to others. You need to regard the records made as telling a story of what has happened, and telling it in a clear and intelligible manner.

What are the key characteristics of good information?

In answering this question you should have noted some or all of the following:

Good information should be:

Relevant Timely

Accurate Objective

Sufficient Unbiased

Reliable Consistent

Complete Understandable

The type and level of information required to be produced in the accounts of a business depends to a large extent on the format taken by the business. The limited company is required to produce by far the most detailed accounting information. For that reason we will consider the accounts of a company throughout the rest of this handout.

Consider the accounts of Bright and Glossy plc for the year ended 31 August 2010.

At this stage you may not feel able to answer this question. What you are faced with is a mass of information of a financial nature presented in a form prescribed by the Companies Act,