CHAPTER 28 – FINANCIAL ANALYSIS OF FINAL ACCOUNTS Example
CoPal Ltd’s statements of financial position for 2016 shows the following total assets and external liabilities.
2016 €
Total assets External liabilities
239,000 73,100
• From these figures (239,000 : 73,100), we can see that CoPal Ltd is solvent. Financial analysis of the statement of financial position A
Go to page 204 of your Activities and Accounts Book to carry out financial analysis of a business based on its statement of financial position.
THE LIMITATIONS OF USING FINAL ACCOUNTS TO ASSESS PERFORMANCE
While final accounts are useful for providing an insight into the performance of a business, the information gathered has limitations. For example:
• Final accounts do not represent changes in consumer tastes and habits.
• Ratios are based on past results and do not show what action the business has taken to resolve issues.
• Final accounts do not give an insight into the morale within a business. A business may look great on paper but have staff problems and industrial relations issues in reality.
Business problem page A
Go to page 205 of your Activities and Accounts Book to offer advice to businesses about the action they can take to overcome financial problems.
