Unit 3 – Financial Strategies
Key financial statements
• Learners will be able to:
• Outline the key elements within published
• Analyse the different stakeholders interested
in key financial statements
• Evaluate the usefulness of key financial
The accounts section of an annual report and
Types of financial objectives
– cash flow targets
– cost minimisation
– ROCE targets
– shareholders’ returns
• In small groups discuss these types of financial
objectives and provide two examples for each of the
four types of financial objective.
Purposes of financial statements
• To help managers to review progress.
• To allow people with an interest in the business (stakeholders) to
assess whether the business is performing well.
• To assess a firm’s working capital.
• To enable people to see if profit is of high quality.
• To enable people to see if profit is being utilised in a sensible
• To compare results with competitors.
• To see if the firm is improving its performance over time.
• To assess the effectiveness of different divisions or branches.
Structure of the income statement (Next PLC)
Years ending 30/01/10 (£m) 30/01/09 (£m)
Revenue 3,407 3,272
Cost of Sales (2,410) (2,363)
Gross Profit 997 909
Expenses (467) (431)
Plus (minus) Exceptional Items - -
Operating Profit 530 478
Finance Income 1 1
Finance Costs (25) (51)
Profit before tax 505 429
Taxation (141) (127)
Profit for year 364 302
Earnings per share 189p 156p
Tesco Profit and Loss (28/2/09) – Key questions
• Which segment of Tesco’s operations contributes the
highest level of revenue?
• Which segment made an operating loss?
• How much did Tesco invest in capital expenditure in
Asia throughout the year?
• How much did Tesco receive in bank interest and
similar during the year?
• What was the increase in dividend per share from
2008 to 2009?
Measure of whether profit is sustainable in the long run
•High quality profit – profit that will continue
•Low quality profit – arises from extraordinary or
•A non-recurring event that materially affected a
company's finances in a reporting period. Must be
explained in the annual report or quarterly report.
•Costs which alter a company's earnings during a
given reporting period and which are a part of the
company's normal activities but are unusually large.