Critically Assess the Uses and Limitations of Financial Statements

Critically assess the uses and limitations of fiscal statements The definition for a financial statement is a written report which quantitatively describes the financial health of a company. (www.investorwords.com) It consists of a residue sheet, income statements and a cash flow statement. This essay will critically asses the uses and limitations of each of these types of financial statements for a strain. A balance sheet shows the financial restrict of a business at a specific assure (Langemeier & Klinefelter 2008). It shows what is owned by the business, what is owed and the owners dower (net worth) of the business. The balance sheet has three main uses. Firstly, it is used for report purposes as part of a limited companys annual accounts. These must be shown to Companies House, HM Revenue and customs and any shareholders unless agreed otherwise. It is also used to let potential drop investors or lenders asses the worth of a business at any given time. This way they can judge whether they deal they should be investing money into the business according to how solving the business is, how liquid its assets are, how the business is financed and how much capital is beingness used. Finally they can be used by the business itself to analyse how to improve its management.

There are a hardly a(prenominal) limitations of a balance sheet as some value of current assets are estimated (www.businesslink.gov.uk); therefore the balance sheet does non reflect a 100% accurate financial property of a business. Also, the fixed assets in the balance sheet curb taken the depreciation of the asset into consideration and so the align value is not shown. Finally, intangible assets such as good will cannot be measured and are therefore estimated figures too and whitethorn be very inaccurate thus causing the completely balance sheet to be incorrect. Therefore a balance sheet is useful in many ways as long as whoever is interpreting the figures takes into consideration that a some of the figures are not... If you want to get a full essay, crop it on our website: Orderessay

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