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Cases

Ohjelma
Bike Lease Finland

Bike Lease Finland

Leasing and maintenance of employee bicycles, digital services.

Ohjelma
Excelence Solutions

Excelence Solutions

Consulting and data analytics, expert services and consulting.

Ohjelma
Finnish Timber Oy

Finnish Timber Oy

Ecological log buildings and construction site processes, project business.

Ohjelma
Green Scape

Green Scape

Customized green wall services for B2B clients, service business.

Ohjelma
Marine Craft

Marine Craft

Customized motorboats, project delivery, manufacturing industry.

Ohjelma
Scandinavian Design

Scandinavian Design

Leasing and maintenance of company bicycles, digital services.

Task

Interpretation of Income Statement and Balance Sheet



In this task, the student interprets a simple income statement and balance sheet of a case company. They examine profitability, the structure of the balance sheet, and liquidity, as well as name five key observations about the company's financial situation. The observations are briefly justified, and finally, a concise management summary is prepared. The task practices financial statement literacy and the formation of a comprehensive financial picture using a practical case example.

Learning objectives

After completing the task, the student:
1. Can read and interpret a simple income statement and balance sheet.
2. Can identify key strengths and weaknesses of the financial situation based on financial statement data.
3. Can formulate verbal observations and conclusions from financial figures.
4. Understands how the income statement and balance sheet together create a picture of the company's profitability, liquidity, and solvency.

Step by step

  1. Interpretation of the income statement and balance sheet

    Objective:
    The objective of the assignment is that the student is able to read and interpret the case company’s simplified income statement and balance sheet. The aim is to identify key strengths and weaknesses in the company’s financial situation and make verbal conclusions based on them.

    Materials:

    • The case company’s simplified income statement and balance sheet provided in the course.

    • The assignment is based on these figures as well as on moderate, logical assumptions about the company’s operations (e.g. industry, size, growth stage).

    Assignment steps (instructions for the student):

    1. Read the short background description and the financial statement items
      Familiarise yourself with the case company’s background description as well as its income statement and balance sheet.
      Write briefly (3–5 sentences) which industry the company operates in, what its size and growth appear to be and what is said about the financial year (e.g. normal year, exceptional situation).

    2. Make your first observations from the income statement
      Examine the following from the income statement, for example:

      • the level and change of revenue compared with the previous year, if the information is provided

      • the cost structure (materials, personnel costs, other expenses)

      • the operating profit and the profit for the financial year.
        Write 3–4 sentences on what these figures indicate about the company’s profitability.

    3. Make observations from the balance sheet
      Examine the following from the balance sheet, for example:

      • the structure of assets (fixed and current assets)

      • the relationship between equity and liabilities

      • the relationship between cash and short-term liabilities (liquidity).
        Write 3–4 sentences about how the company’s solvency and liquidity appear.

    4. Name five (5) key observations about the financial situation
      Write a clearly numbered list of five observations based on the income statement and balance sheet. For example:

      • profitability (profit/loss, margins)

      • revenue development

      • indebtedness

      • liquidity

      • equity ratio or change in capital structure.
        Formulate each observation in 2–3 sentences: what the figure indicates and why it is important.

    5. Explain the observations verbally
      Expand each of the five observations with a short explanation (in total around ½–1 page). Answer, for example:

      • Which figure or ratio led to this observation?

      • What risk or opportunity does the observation represent for the company?

      • Is the situation better or worse than what could be expected from the case description?

    6. Prepare a brief “management summary”
      Finally, write a 5–7 sentence summary you could present to the case company’s management. State:

      • what the overall financial picture of the company is

      • what you consider the greatest strength

      • what is the most important concern that management should address next.

    Submission and evaluation:
    Submit a text of about 1–2 pages that includes:

    • a short background description of the company

    • key observations from the income statement and balance sheet

    • five clearly formulated observations and their explanations

    • a concise management summary of the company’s financial situation.

    Evaluation focuses on how well:

    • you read and interpret the income statement and balance sheet

    • you draw logical and understandable conclusions from the figures

    • you distinguish essential observations from non-essential ones

    • you write clearly and in a well-structured way.

    Recommended working time: approximately 45–60 minutes, individually or in pairs.

Tasks by audience and theme

University of applied sciences

Polytechnics and higher education studies.

68 tasks