6.4a Income Statements

Overview of Financial Statements

A financial statement provides an overview of the businesses financial position over a specific period of time. It allows managers, shareholders, and other investors to see how the business has performed.

For limited companies, an annual statement is a legal requirement.

Income Statements

An income statement shows…

revenue and costs
profit or loss

Comparing income statements from previous years shows if the company’s performance is improving or declining.

Understanding Income Statements

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Measuring Performance

Comparing income statements from previous years shows if the company’s performance is improving or declining.

In the tables above, we can see that:

The business has increased sales by £40k.
Although it has spent more in 2023, it is proportionately smaller than the increase in revenue. This means the business is more efficient.
It also decided to triple its dividend (keeping shareholders happy).
And it nearly doubled its retained profit!