Question

We are reading about cash flow this week. Can anyone explain the type of questions about future cash flows investors and creditors would attempt to answer with information in the income statement? If someone has already answered this question correctly, either provide a fresh and/or different perspective. Please do not post the same response.

Answer 1

What type of questions that can answered from the income statement by investors and creditors

1.What is the company performance in terms of net profit/gross profit and surplus available for distribution to investors?

2.What are revenue sources for the company and total gross revenue for the year?

3.What is the purchases that was made by the company during the period ?

4.What are expenses incurred by the company during the accounting period?

5.What is the return that the business is making?

6.What is the risks and rewards associated with the business?

7.What are costs that was incurred by the business in generating revenue and these costs are exceeds the revenue?

8.How the company is going to utilise the profit that was made whether to invest or distribute to investors?

9.Whether the company has interest expenditure incurred it will be helpful to creditors to analyse the leverage effect on the company profits?

10.What are the expenses directly attributable to production and fixed cost incurred irrespective of the production?

11.What are the expenses towards tax payable to government and whether the company made adequate tax expesnse towards tax liability?

12.Whether the the company financial ratios are better and comparison with industry standards are derived from the income statement?

13.What is the gross profit percentage which will be compared with the industry gross profit percentage?

14.What is the net profit and comparison of net profit with the industry standards?

15.Can net income attributable to shareholders exceeds firm wide net income?

16.Does revenue equal to gross profit for companies does not have employees and inventory cost?

17.What is the amout apportioned in the current year towards the PPE incurred in the previous year?

18.Can depreciation towards PPE is resonable towards earning from operations?

19.How to reconcile the performance with the dividends?

20.Why were numbers from income statement from year to year are changing?

21.What is the performance of the company compared with the previous years?

22.What is the good profit margin that would make it worthwhile to invest?