A firm's financial information refers to results of business operations over a specific period, usually six months to one year, stated in monetary terms. This information is used internally by managers to analyze performance and externally by potential investors, lenders, and tax authorities. The financial information includes key statements like the profit and loss statement, balance sheet, and cash flow statement. The profit and loss statement shows revenues and expenses over a period of time. The balance sheet presents assets, liabilities, and equity at a point in time. The cash flow statement details cash inflows and outflows. Financial information is an important tool for evaluating a firm's financial performance and health.

2. Firm’s financial information
 A firm’s financial information refers to
results of business operation within a
specific time period, state in monotery
terms and used by both internal and
external parties.
 The time period for the financial
information normally covers from six
months to one year of firm business
operations.

3.  Example of external parties who use this
financial information are:
 Potential investors and firm shareholders
 Lender
 Tax authorities
 The internal parties in this case are the
firm’s managers themselves. They need
the information to see how effectively
their firm is being run.

4.  By analyzing the given information,
managers could:
 Detect any deviation between the firm’s
forecasted sales and actual sales of the firm
or between the forecasted overhead and
actual overhead.
 Study those result shown to pinpoint relative
strenght and weakness in operation.

5. Sources of financial information
on companies in Malaysia
1. Annual report
2. KLSE handbook
3. KLSE daily diary- Company’s share price
 The most widely used source of
financial information is the firm’s annual
report .

6.  A firm annual report prepared for the
shareholder presents two important types
of information
1. The 1st is a verbal statement of the company’s
recent operating results and its expectations
for the coming year.
2. 2nd is the quantitative financial statement
parts which report what actually happened to
the firm’s financial position, earning, and
dividends over the past few years

7. Presentation of Financial
Information
 The financial information is generally
presented in three forms of reports.
1. Profit and loss statement
2. Balance sheet statement
3. Cash flow statement
 Each report is audited by external
auditors to ensure its completeness and
accountability.

8. Azmi Company
Profit and Lost Statement
For the period ended 31/12/2002
Sales
Cost of good sold
RM 10,000,000
<6,000,000>
Gross Margin 4,000,000
Expense
Depreciation
<1,600,000>
<500,000>
Earning before interest and taxes
Interest expense
1,900,000
<4,000,000>
Earning before tax
Tax
1,500,000
<500,000>
Net income RM 1,000,000

9. Profit and loss statement
 The profit and lost statement
summarizes the firm’s revenue and
expenses over a period of time.
 It also gives an indication on how much
profit the company has earned during a
year (sometime 6 months) of accounting
period from its operations.
 This value is available once firm’s
expenses have been subtracted from
the firm’s revenue.

10. Items on the profit and loss
statement
Different methods, such as First in First Out (FIFO) and Last in Last
Out (LIFO), can be used to determine the value of ending invetoy
This methods, in turn, affect the reported cost of goods sold and the
firm total profit differently.

11.  Example: evaluating ending inventory
Assume a firm makes purchases of an item to be sold every three
months. Each purchase consists of 1000 units of goods. Due to rapid
inflantonary growth the cost of purchased increases each time. The
remaining inventory unsold at the end of the year, was 1000 units.

12.  FIFO method:
 LIFO method:
Cost of the ending inventory
based on the FIFO method :
1000 units*RM4.00 = RM 4,000
Cost of the ending inventory based
on the LIFO method :
1000 units*RM1.00 = RM 1,000

13.  Different method thus give different values of
cost of goods sold. In this case, LIFO method
of inventory valuation produces higher cost of
goods sold value when other factors remain
constant.

14. Balance sheet
 This statement shows the firm’s assets
and the claims against those assets at a
moment in time.
Assets = Liability + Equity

15.  Assets
 Firm’s assets are arranged accordingly to their
liquidity.
 Liquidity in this case reflects the time required and
the ease to convert one or a few on the firm’s assets
into cash in the event the firm has to generate cash
in order to pay off its debt.
 The shorter the times it takes and the easier the
process of converting those assets, the higher their
liquidity.
 For instance a firm’s assets such as marketable
securities and account payable have higher liquidity
level compare to other’s firm assets.
 Typically, they ranked second and third behind cash.

17.  A firm’s assets can be divided into two categories:
1. Current assets
○ Items expected to become cash within one
year.(Shorter time period)
○ Example: Cash, account payable, marketable
securities, and inventory.
○ Activities such as selling of inventory, collection of
account receivable from sale made on credit earlier
and other firm securities.
Assets Details
Cash Money in the bank’s checking account and
foreign currency on hand
Account
receivable
Credit sales which have not been paid but
are generally expected to be paid soon
Inventory Product held for sale in normal course of
doing business.
Example: raw materials, work in process,
finished goods.

18. 2. Fixed assets
○ Assets that are expected to have life, longer
than one year.
○ Example: plant machinary, equipment
○ At the end of fiscal year, accumulated
depreciation of an asset is subtracted from
its fixed cost to give its net books value of
the asset.
○ The accumulated depreciation actually
represent the total of this year’s depreciation
and all the previous year’s depreciation
expense.

19.  Liabilities
 Liabilities represent company debts or obligations
to outsiders.
 Can be divided into:
○ Long term liability
 Longer payback period
 Consist of bonds and lon term loans.
 As the firm uses more debt, the more highly leveraged it is
said to be.
○ Short term liability
○ Also known as current liabilities: account payable,
accruals, notes payable,and short term note
 Payment within one year

20.  Equity
 Equity represent money that is supplied to the
company by the owners either throuh direct
investment or retained earning.
 Direct investment in the case of sole
proprietorship and joint venture occurs when
an owner puts money into a business as
starting capital.
 On the other hand, direct investment for a
corporation occurs when the corporation sells
its shares to the public the first time. Such
event known as initial public offering (IPO)

21.  Retained earnings come from the profits of a
business that are not paid out to owners as
dividen. Instead, profit are reinvested back into
business. The excess profit is usually used by
businesses to acquire assets
 Preferred stock is also classified as an equity. It
is also instrument that can be used to raise
capital.
 Preferred stock is included in the balance sheet
in the equity section.
 Therefore, the total equity is the sum of common
stock, preferred stock and retained earning.

22. Cash flow statement
 Statement of cash flows shows the
detailed movement of cash in a firm.
 The movement is detected by observing
where the money came from and what it
was used on.
 Cash flow statement is constructed from
information found in the income
statement of the current year and
balance sheets from the previous year
and the current year.

23.  Asset increase = use of cash
 Purchase of assets with the firm’s cash.
 Therefore, this will reduce the firm’s total
cash level
 Asset decrese = source of cash
 Selling of the firm’s asset
 Generate cash to the firm

24.  Liability increase = source of cash
 Firm has obtained credit for its purchases or
obtain loan from the financial institutions.
 There is no cash payment required from the
firm.
 This will preserved the cash balance for that
period of time.
 Increase the firm cash reserve.
 Obtaining loan will increas firm’s cash balance.
 This because loans are normally given to firm in
cash

25.  Liability decrease = use of cash
 The firm has paid all of its credit purchases
made previously or paid off the loan
obtained from the financial institutions
 Those payment are made of cash
 This will reduce the firm’s cash balance.

26. Developing statement of cash
flow
 To develop a statement of cash flow, it
requires three steps:
 Determining net cash flow from operating
activities
 Determining net cash flow from investing
activities
 Determining net cash flow from financing
actvities

27.  Determining net cash flow from operating
activities
 Operating activities are things a company
does on a day to day basis to conduct its
business.
 Example: buying inventory, producing and
selling product, paying expenses and taxes,
collecting credit sales.
 The end result of all of these activities is
reflected by the company net income.

28.  Determining net cash flow from investing
activities
 Investing activities normally include the
purchasing of fixed assets.
 Determining net cash flow from financing
actvities
 Financing activities in general deal with the
capital accounts, long term debt and equity.

32. ABCD Co.
Balance Sheet Statement
As at 31/12/2012 (RM)
2001 2002
Cash 1,600 2,000
Account receivable 5,200 12,000
Inventory 15,600 14,000
Fixed assets 20,000 27,000
Accumulate
depreciation
<14,400> <16,000>
Total assets 28,000 39,000
Account payable 2,500 3,000
Accrued expenses 1,500 1000