Statement of Financial Performance

Previously known as the Profit & Loss Statement

Often considered alongside the Statement of Financial Position is the Statement of Financial Performance. Whilst the former details the amount of equity an entity has at a moment in time (assets minus liabilities), the latter details and focuses on the total change in equity in a period of time.

The Statement of Financial Performance was formerly known as the Profit and Loss Statement, although it is still referred to as such in the Corporations Act.

The Statement covers a specified period and this is prominently displayed on the front. This period will normally be a financial year, but can also be for a six month period, a quarter or a month. Normally public companies will prepare statements that cover every month and quarter however these would not normally be made publicly available. Effectively the Statement measures and details the revenues and expenses in a period but also any event or transaction that has a direct impact on the equity of an entity. This excludes both investments made during the period (i.e. direct contributions to the equity) and distributions to equity owners during the period (eg. dividends).

A common example of a transaction that is not revenue or an expense but is still recognised in the Statement is where assets are revalued. This is recognised as it directly impacts on the entity’s equity and this is one of the most significant differences between the former Profit and Loss Statement and the new Statement of Financial Performance. By revaluing an asset, this is not strictly speaking, a part of any profit or loss.

The Statement is prepared on an accrual basis. This means that the effects of any financial transaction or event are recognised in the financial period for which they occurred even though the physical cash may not have been paid or received. This means that the accrual basis for accounting records the changes within assets, liabilities, equity, revenues and expenses that you would not necessarily see if you just accounted using all cash receipts and cash payments within the entity for a given period of time.

Some of the items that are required in the Statement include the revenue and expenses from ordinary activities, the profit and loss before income tax expense, and the income tax expense.

Some analysts will prefer the performance of a company and focus on earnings (Financial Performance) whereas others will look more for the long term financial stability of the company rather than earnings (Financial Position). Essentially, either approach is valid and can be an effective analysis tool. Ideally any analysis will incorporate both statements as well as the third financial statement – the Statement of Cash Flows.

The Statement of Financial Performance is a vital financial report that allows investors the opportunity to assess a company’s financial health.