Statement of Financial Position

• what is a statement of financial position?

  summaries the assets, liabilities and net worth of a business
• what are assets?


  items of value a business owns
• what are current assets?

  short term assets
• what are non-current assets?

  long term assets
• what are liabilities?


  debts owed by a business
• what are current liabilities?

  short term debts
• what are non-current liabilities?

  long term debts
• what is working capital?

  a measure of a firm’s liquidity
• what are net assets?

  net worth of the business assets and liabilities
• what is total equity?

  the value of shareholders funds
• what is the equation for total equity?

  share capital + retained profit
• what does a statement of financial position show?

  • whether a business has cash to pay its debts on time
  • it’s financial flexibility to acquire finance
  • whether a business is solvent
  • it’s ability to distribute cash in the form of dividends to shareholders
• advantages of statements of financial position?

  • shows the long and short term liquidity
• disadvantages of a statement of financial position?

  • doesn’t indicate the future
  • potential to be window dressed
  • analysis over a number of years