Bus1.

3: Financial Awareness
3. Examine financial commentary that interprets and analyses published financial
information

3.1 Main items commented on and explain their importance

Ø Financial statements (or financial report) is a formal record of the financial activities and
position of a business, person, or other entity.

Ø The main segments to be used in the financial reporting of the organisation are the following.

— A balance sheet or statement of financial position, reports on a

company's assets, liabilities, and owners equityat a given point in time.

— An income statement or statement of comprehensive income, statement of revenue &

expense, P&L or profit and loss report, reports on a company's income, expenses,
and profits over a period of time. A profit and loss statement provides information on the
operation of the enterprise. These include sales and the various expenses incurred during
the stated period.
— A Statement of changes in equity or equity statement or statement of retained

earnings, reports on the changes in equity of the company during the stated period

(Grinblatt and Titman, 2016).

— A cash flow statement reports on a company's cash flow activities, particularly its

operating, investing and financing activities.

3.2. Identify trends in published accounting information
Ø Perhaps foremost among recent changes in world financial markets has been their accelerating
integration and globalisation.

Ø This development, which has been fostered by the liberalisation of markets, rapid
technological progress and major advances in telecommunications, has created new investment
and financing opportunities for businesses and people around the world.

Ø In part, this development has been spurred by the surge in mergers and acquisitions and
leveraged buy-outs that has taken place in markets of late, not least in the euro area.

Ø One aspect of this securitisation process has been the increase in corporate bond issuance,
which has also coincided with a diminishing supply of government bonds in many countries,
particularly in the United States (Berger, Imbierowicz and Rauch, 2016) .

Ø Other interesting developments in world financial markets include the continued broadening
and expansion of derivatives markets.
Ø The broadening of these markets has largely come about because rapid advances in technology,
financial engineering, and risk management have helped to enhance both the supply of and the
demand for more complex and sophisticated derivatives products.

Ø The increased use of derivatives to adjust exposure to risk in financial markets has also
contributed to the rise in the notional amounts of outstanding derivatives contracts seen in
recent years, in particular in over-the-counter (OTC) derivatives markets with interest rates and
equities as underlying securities.

Ø the leveraged nature of derivative instruments poses risks to individual investors, derivatives
also provide scope for a more efficient allocation of risks in the economy, which is beneficial
for the functioning of financial markets, and hence enhances the conditions for economic
growth (Grinblatt and Titman, 2016).

Ø Among the many changes in global financial markets, developments in the euro area have been
particularly striking.
Reference
Grinblatt, M. and Titman, S. (2016) Financial markets & corporate strategy.

Berger, A.N., Imbierowicz, B. and Rauch, C. (2016) The roles of corporate governance
in bank failures during the recent financial crisis. Journal of Money, Credit and
Banking, 48(4), pp.729-770.

Van Rixtel, A.A. and Gasperini, G. (2013) Financial crises and bank funding: recent
experience in the euro area.

Brigham, E.F. (2014) Financial management theory and practice. London: Atlantic
Publishers & Distri.