ABSTRACT
So far your studies through most of this book have focused on the preparation of accounts. However, as we have told you all along, our purpose is not to teach you how to become an accountant but to give you the knowledge, understanding and confidence to read a set of financial reports and to talk to and understand an accountant. Chapter 7 has illustrated how all of the stages in the accounting process are managed and ultimately why the major statements are constructed – and even demonstrated how you could basically analyse the main financial statements. However, constructing accurate financial statements, although a brilliant skill in its own right, is only half the story. The real purpose of this book is to show you, and to help you understand, what it all means. What does it really mean if company has a gross profit of £10m? What else do you need to know? What are the financial strengths and weaknesses of a business? How does one organisation compare to another in the same industry? The way that we can answer these questions, and as ever many more, is by starting to dissect annual reports.
