Companies in the UK are required to file accounts each year with a Government department known as Companies House. All the data listed there is public and is open to review by anyone with an interest. Actual understanding of the data there can be a challenge for even experienced accountants and can be daunting to the less experienced. In this guide Adrian Lawrence FCA a qualified UK Chartered Accountants shares some insights and hints to help you find your way through the financial data.
The accounts that are filed each year are known as Financial statements, these contain the following statements
A profit and loss account which shows income, expenditure and if there is a profit or loss made in the year.
A Balance sheet which shows the position of a company at its chosen year end date and includes its assets, liabilities and if overall there is a positive or negative value when looked at together.
A cash flow statement, which shows where cash has been generated and how it has been spent in the year and what cash the company started with at the beginning of the year and what they ended with at the end.
Then also included are notes to the accounts, these contain useful information giving more detail behind the figures in the balance sheet and profit and loss account.
The directors report which gives a narrative account about the performance of the business in the year and of notable events.
An if applicable an Auditors report which gives an opinion based on audit work to verify the accuracy of the accounting records.
Things to look for
Cash is always kind, look at the balance sheet how much cash is there at bank and compare that to the scale of the profit and loss account, if cash is low it suggests the business is dependent on creditors or its directors to support trading.
Has profit been rising or falling over recent years? Look at the P&L reserve figure in the balance sheet this is the sum of the previous years and the current years trading activity is it healthy?
Balance a negative balance sheet is a worry as that means there are more liabilities than assets.
Read Part 2 for more great tips from Adrian Lawrence