TABLE OF CONTENTS In the next two chapters you will be learning how to analyse and interpret a set of financial statements. You will discover what questions you should ask about the accounts, and how and where to find the answers to these questions.
In this chapter you will be focusing on the profit and loss account (income statement) and balance sheet, using them to assess the organisation's profitability, liquidity and efficiency. In Chapter 7, you will be looking at financial structure, and at how to assess a company's performance from the point of view of a shareholder or potential shareholder. In that chapter you will also be introduced to the analysis of cash flow statements.
Let me tell you about my aunt Pamela. She owns a small newsagent's shop in our local town, employing one sales assistant, and seven school children who deliver morning papers. Suppose I told you that she earned 0.5 m profit from her business last year. Would you say that was a good result or a poor result?
Hopefully you would say that was a good result. It would be quite astonishing to earn an annual profit of 0.5 m from such a small, relatively low-risk enterprise!
Now consider a public limited company (plc) which owns a chain of newsagents, with an outlet in every high street and at every major railway station in the UK. If I told you that this plc...
