FINANCIAL REPORTING
TASK - 1: Usefulness
As per Investopedia, Financial Statements are the sets of accounts which records all financial activities of business entity. The fundamental objective of financial statement is to provide financial information of business entity to the potential and existing investors, lenders or other creditors (IASB Framework). Financial statement provides information about the financial position (balance sheet), performance i.e. changes in economic resources (income statement), and information on cash position (cash flow statement) to the investors and lenders (IAS-1). The investors use this information to make sound financial decisions, whether to buy, sell or hold their share investment and assessing the ability to pay dividend (IASplus online). Investors are looking for how the entity is performing; how they utilising their resources and how entity is progressing in terms of profits and dividend returns
The lenders need the information to determine whether their loans and interest will be paid on time or not and to make decision on lending money on what terms.
Kingfisher Plc is leading home improvement retail group in Europe and listed on London Stock Exchange and maintains its accounts according to the standards and policies set by IASB Framework. The financial statements make information useful by relevancy and faithful representation. Furthermore, information should be comparable, understandable and up-to-date (IAS-1). Relevant information is that which create impact of change (ability to influence) on the mind of decision maker. The information must be predictive and confirmative as FS is considering the entity as a going concern and operations will continue in future (Conceptual Framework para4.1).
Financial information not only needs to be relevant but also should be faithfully presented (complete & free from errors). Financial statement shows the result of management’s stewardship of resources. The cash flow statement is good example of faithful representation. Furthermore, it assists users to predict the entity’s future cash flows, their timings and certainty. Kingfisher plc provides a detailed consolidated CFS on pg.80 of its final accounts and also gives accounting policies of CFS (note-31). The net cash on year ended on 1st February 2014 is £534m.
Furthermore, Leasing and Group Accounts also presents faithful representation as there is no chance of bias information. The investors are interested in EPS and revenue figures of the company. The figures presents that company is growing or decline in financial manner. The investors can look at Kingfisher’s FS and will arrive at sound economic decision. The increase in EPS by 24.5% shows that Kingfisher is making profit.
TASK – 2 A: ABDUL
By considering the information of the king fisher financial statement there are few important terms of income statement and balance sheet to which Abdul must be aware of them before taking investment decision.
There are three main components in the balance sheet, such as assets, liabilities, and equity which provide the information about the company fundamental position. Assets are use to generate the future economic benefit. Investors are attracted by those companies who have plenty of cash in their balance sheet. Cash are very important for the working capital expenditure, and it gives protection to the company against the tough times. Liabilities are the legal obligation which company has to pay. And idea position for the company is when assets figure is more than liabilities and kingfisher comes in this category and third is equity that means how much shareholders provide the capital..
In the income statement revenue is most important figure. Revenue represents the company financial performance during the year. Operating profit are the figure which show how well company mange its cost, and efficiently use the resources to minimize the operating expenses.
