Final answer:
Firms normally calculate their Statement of Financial Position (SOFP), also known as the Balance Sheet, at the end of their financial year to assess their financial health, measure solvency and liquidity, and make informed decisions. Calculating the SOFP helps firms determine their working capital and ensure they have enough liquidity. It is crucial for firms to understand their financial position, assess performance, and make informed decisions for the future.
Step-by-step explanation:
Firms normally calculate their Statement of Financial Position (SOFP), also known as the Balance Sheet, at the end of their financial year. The SOFP is a financial statement that shows the company's assets, liabilities, and equity at a specific point in time. By calculating the SOFP annually, firms can assess their financial health, measure their solvency and liquidity, and make informed decisions about future strategies and investments.
An example of why firms calculate their SOFP is to determine their working capital, which is the difference between current assets and current liabilities. Firms need to know their working capital to ensure they have enough liquidity to meet their short-term obligations and fund their day-to-day operations.
Overall, calculating the SOFP is essential for firms to understand their financial position, assess their performance, and make informed decisions for the future.