Financial Statements of a Public Limited Company

A public limited company (plc) is a business owned by shareholders, with its shares traded publicly on a stock exchange. Due to their public nature, plcs are subject to stringent reporting requirements to ensure transparency and accountability to their investors and the public. This essay will discuss the four key financial statements that a plc is legally required to publish each year.

Income Statement (Profit and Loss)

The income statement, also known as the profit and loss (P&L) statement, reports a company's financial performance over a specific period, typically a fiscal year. It presents the company's revenues, expenses, and the resulting profit or loss.

The basic structure follows this equation: Revenues - Expenses = Profit (or Loss).

For example, a supermarket's income statement would show its sales revenue from groceries, minus its expenses like the cost of goods sold, salaries, and rent. The resulting figure reveals its gross and net profit for the year.

Statement of Financial Position (Balance Sheet)

The statement of financial position, commonly called the balance sheet, provides a snapshot of a company's assets, liabilities, and equity at a specific point in time, typically the end of the fiscal year. It follows the accounting equation: Assets = Liabilities + Equity

* Assets are what the company owns, such as cash, inventory, and property. * Liabilities are what the company owes to others, such as loans and accounts payable. * Equity represents the shareholders' stake in the company.

For example, the balance sheet of a car manufacturer would show its assets like factories and inventory of cars, balanced against its liabilities like bank loans and shareholder equity.

Cash-Flow Statement/Statement of Cash Flows

The cash-flow statement tracks the movement of cash both into and out of a company during a specific period. It provides a clearer picture of a company’s liquidity than the income statement, as it focuses solely on cash transactions. It is divided into three sections:

* Operating activities: Cash flow from the company’s core business operations (e.g., sales, payments to suppliers). * Investing activities: Cash flow related to investments, such as the purchase or sale of property, plant, and equipment. * Financing activities: Cash flow from activities like issuing stock, taking out loans, or paying dividends.

For instance, the cash flow statement for a technology company might show cash inflows from software sales, cash outflows from purchasing new equipment, and cash inflows from issuing new shares.

Statement of Changes in Equity

The statement of changes in equity details the movements in a company's equity over the reporting period. It explains the changes in retained earnings – the portion of profits kept by the company after paying dividends – as well as new share issuances or buybacks.

This statement is particularly useful for tracking how a company manages its profits – whether they are reinvested for growth or distributed to shareholders as dividends. For example, a rapidly growing tech company might show significant increases in retained earnings, indicating a focus on reinvesting profits for future expansion.

Conclusion

These four financial statements work together to provide a comprehensive overview of a company’s financial performance and position. Investors and other stakeholders rely on this information to make informed decisions. The legal requirement for plcs to publish these statements ensures transparency and accountability in the business world.

**Source:** Atrill, P. and McLaney, E. (2019). Accounting and Finance for Non-Specialists. 11th ed. Pearson.