Assessment 2 - Step 2 - Operating or Financial

This learning task required me to move beyond simply recording figures in a spreadsheet and instead engage more deeply with what each line item in the financial statements actually represents. By classifying items in the Income Statement and Balance Sheet as either Operating or Financial, I was encouraged to slow down and consider how the firm generates value, how it funds its operations, and how those activities are reflected in the financial statements.

At first, the task felt more challenging than expected. Some items were straightforward to classify, such as revenue, cost of sales, employee expenses and property, plant and equipment, which clearly relate to the firm’s core operating activities. These items directly reflect the day-to-day running of the business and how it delivers its services. Classifying these as Operating felt intuitive and helped reinforce my understanding of what constitutes the firm’s underlying business model.

Other items required more judgement and created uncertainty, particularly lease liabilities, cash flow hedges, net gains on hedging instruments, and exchange differences. While these items are not part of day-to-day operating activities, they are closely linked to how the firm manages risk, funding, and long-term commitments, which made their classification less straightforward. In particular, lease liabilities appeared operational in nature but were presented alongside financial obligations, while hedging and exchange differences related to financial risk management rather than core operations. Although I am not completely certain that all classifications are correct, I have applied my best professional judgement based on a careful reading of the financial statements and the accompanying notes.

Discussions with other students were particularly valuable during this step. Comparing classifications revealed that some items could reasonably be viewed differently depending on how each person interpreted the firm’s operations. For example, certain investments might be considered Operating for a firm whose core business involves holding and managing investments, but Financial for a firm where they are incidental. These conversations reinforced the idea that accounting involves judgement, not just rules, and that context matters when analysing financial statements.

This task was both frustrating and enlightening. It was frustrating at times because there were no perfectly “right” answers for every item, and I often felt unsure about my classifications. At the same time, it was enlightening because it forced me to truly engage with the structure and meaning of the financial statements. I now feel more familiar with the firm’s Income Statement and Balance Sheet and more confident in explaining what different items represent. Most importantly, this exercise helped me shift from seeing the financial statements as a list of numbers to viewing them as a story about how the firm operates and how it is financed.

Link to Company Spreadsheet - CLICK HERE