Financial Information

Financial Information 1. Why is financial information important for a business- provide four reasons * For owners and managers to be able to make sensible business decisions. * For prospective investors to know where the company stands financially. * Financial institutions such as banks can use this information to decide whether to give the company things such as loans etc. * For everyone within the company to understand its financial position, regarding assets, liabilities, equity, income and expenses. 2. How would a business use information on its a) level of expenses and b) levels of sales/revenue and c) levels of profit * Level of expenses: a company may see if their level of expenses is becoming excessive and use this to make a plan surrounding lowering their expenses. Alternatively if they have room to spend more money then they may want to consider ideas which will cost more but bring in more customers/profit. * Levels of sales/revenue: if a company is not selling enough of their product or service to meet their intended goal, then they will need to revise their whole structure of advertising and customer service etc. This information will tell them if something is not going quite right in the business. If they are meeting their sales goals then this information will give the owner a figure to share with staff, and potentially a chance to decide on a higher goal for the follower financial term. * Levels of profit: if they company is not making enough money, this will be shown in the levels of profit In this situation, the company would have to look at its expenses, and if those can’t be lowered then they will have to consider new methods of advertising and producing their product. 3. Provide a definition for each of these financial statements and describe the information that is contained in each report * Income statement: shows a company’s revenue and expenses over a specific timeframe. * Statement of