Explain how information in the income statement of a public limited company is useful for potential investors. (8)
Answers could initially define an Income Statement as a record of the revenue, costs and profits (or loss) of a business over a given period of time.
Reference may well be made to the sections of an Income Statement and the information presented:
– Gross profit, sales revenue, cost of sales.
– Expenses/Net or operating profit and profit after tax.
– Dividends and retained profit.
Potential investors can use the information to:
– measure and compare the performance of a business over time.
– compare the performance of the business with other companies.
– use ratios from this information to assist performance analysis.
– actual profit can be compared with expected profit.
Investors and potential investors can use the information to determine whether to put money into the business. It is not all that they will look at but it is important basic/fundamental information.
Discuss the usefulness and limitations of published accounts for business stakeholders in measuring the performance of a company. (20)