25 Need-To-Know Management Ratios

1

Introduction to financial statements

This chapter will introduce you to three key documents:

• The balance sheet
• The profit and loss account
• The cash flow statement

Introduction

To have a coherent view of how a business performs, it is necessary, first, to have an understanding of its component parts. This job is not as formidable as it appears at first sight, because:

• much of the subject is already known to managers, who will have come in contact with many aspects of it in their work;
• while there are, in all, hundreds of components, there are a relatively small number of vital ones;
• even though the subject is complicated, it is based on common sense and can, therefore, be reasoned out once the ground rules have been established.

This last ...