The Uses of Financial Statements-Free-Samples-Myassignmenthelp

Question: Prepare an Income Statement for analysis of the venture that is under consideration by Aunt Lisbeth. Answer: Introduction Financial Analysts are people who analyze the performance of an organization by utilizing the information given in the annual financial statements of that organization. Such analysis help the existing and the potential investors in making their investments decision. Financial Statements for an organization means the Balance Sheet, a Statement of Profit and Loss, Cash Flow Statement and Notes on Accounts. A Statement of Profit and Loss indicates the incomes earned and the expenses incurred during a specified period. The report will discuss the usefulness of such a statement in the later part. Discussion A Statement of Profit and Loss is popularly known as an Income statement or a PL Account. It is a Statement, which illustrates the profitability of an organization for a specified period (Healy and Palepu 2012). The basic equation for this statement is revenues minus the expenses, the positive difference being profits while the negative difference means a loss. It is prepared on an accrual basis (Weil, Schipper and Francis 2013). This Statement helps in the calculation of various ratios like Gross Profit Ratio, Margin of Operating Profit, Net Profit Ratio and Operating Ratio (Weygandt, Kimmel and Kieso 2015). Globally, the Accountants rely on this Statement for gauging accuracy of the transactions and calculate the tax liabilities (Brigham and Ehrhardt 2013). Investors on the other hand utilize this statement for analyzing the current affairs of the organization (Needles, Powers and Crosson 2013). Every organization must compare its latest income statement with that of the previous periods, which would help them assess their performance in a better way so that they can make their policies and plans accordingly (Brigham and Houston 2012). Aunt Lisbeth is a 63-year-old woman who is settled in Oslo. She has recently taken an early retirement from the oil company in which she used to work for 30 years. She received a sum of 4.8 Million Norwegian Krone. After the tiresome corporate life Aunt Lisbeth is excited and contemplating a career in retailing geodes and decorative stones. Aunt Lisbeth is confident about starting up a new venture by importing Geodes from California and selling the same in Europe. Aunt Lisbeths husband is concerned that the venture may not be successful, may prove to be a disaster leading to huge losses and suggested to make a detailed financial plan for evaluating the viability of this venture. Aunt Lisbeth provided some of the relevant details about the probable dealings, with the help of which an Income Statement is prepared, which is provided in the form of an attachment with this report. Analysis Aunt Lisbeth enjoys the Exclusive Right of selling the Geodes in Europe for a period of 5 years. If Aunt Lisbeth keeps the cost under control and price as given in the information then Aunt Lisbeth would enjoy significant amount of profits in the 1st 5 year because of Monopolistic Situation so created. The Upfront Payment would be amortized over a period of 5 years because the exclusive right is available only for 5 years. Moreover, the sales made to Harald ensures usage of the exclusive right as sales over the net would take some time to be stable. The given costs and the revenues show that the venture is capable of generating considerable amount of profits for at least a period of 5 years. Thus, it can be said that the venture looks promising and it can be pursued upon. Conclusion Thus, it can be said that an Income Statement illustrates the profitability of an organization for a given period. It provides factual data that enables the users to analyze the statement and take their decisions accordingly. Income Statement along with Balance Sheet and Cash Flow Statement can be used to get an in-depth view of the companys position. Bibliography Ballwieser, W., Bamberg, G., Beckmann, M.J., Bester, H., Blickle, M., Ewert, R., Feichtinger, G., Firchau, V., Fricke, F., Funke, H. and Gaynor, M., 2012.Agency theory, information, and incentives. Springer Science Business Media. Best, B., 2014. The uses of financial statements.Retrieved March,5 Brigham, E.F. and Ehrhardt, M.C., 2013.Financial management: Theory practice. Cengage Learning. Brigham, E.F. and Houston, J.F., 2012.Fundamentals of financial management. Cengage Learning. Healy, P.M. and Palepu, K.G., 2012.Business analysis valuation: Using financial statements. Cengage Learning. Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015.Issues in financial accounting. Pearson Higher Education AU. Horngren, C., Harrison, W., Oliver, S., Best, P., Fraser, D. and Tan, R., 2012.Financial accounting. Pearson Higher Education AU. 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