Accounting Theory and Governance | Report
Added on 2020-03-16
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Accounting theory and governance 1
ContentsIntroduction................................................................................................................................3Summary of Case Studies..........................................................................................................3Case Study 1...............................................................................................................................3Analysis of Annual Report (Company Name: Wesfarmers)......................................................3Examining figures in financial statements.............................................................................3Important Financial Figures in Understanding the Financial Performance of the Company.4Management Opinion in the Report about the Financial Figures...........................................5Assessment of Financial Report in relation to Management Opinion....................................6Analysis of the Wesfarmers as the potential investment........................................................7Case Study B..............................................................................................................................8Recent Changes for Addressing Executive Remuneration in the United States....................8Effectiveness of reforms on the Shareholders Assumptions to Act.......................................8Role of Taxation laws and Denying Contract Adoption for Addressing ExecutiveRemuneration.........................................................................................................................9Conclusion................................................................................................................................10Recommendations....................................................................................................................10References................................................................................................................................112
IntroductionFinancial knowledge has been a must in order to take the review of the companyfinancial performance. As the investors it is not possible to review the whole businessperformance and to take decisions to invest in the various choices of investment options. Inthis regards Australia Securities and Investment Commission (ASIC) has provided 10 majorpoints that every investors need to undertake before making the decision to invest in anycompany. All these points help investors to analyze the performance of the company and tocome with the proper choice. All these points are defined in detail and are really helpful forthe investors. In this report in order to explain all these points a case study 1 has beenundertaken and various questions to case study has been answered. For case study companycalled Wesfarmers has been taken to explain the case study questions. Executive remuneration is always the concern for the stakeholders as their payincrease year to year even in the situation of financial crises. In order to explain the reformundertaken to make changes on how the remuneration of the top management has to becalculated, the case study 2 has been taken and various questions has been answered. Summary of Case StudiesCase Study 1: This study provides the 10 major points that every investors mustreview in context of any company chosen for investment purpose before making thedecision of investment. In this regard Wesfarmers has been selected to explain theprocedure.Case Study 2: This study discusses the issues with the excessive executiveremuneration in the United States and reforms to make changes in the calculation ofthe executive remuneration.Case Study 1Analysis of Annual Report (Company Name: Wesfarmers)Examining figures in financial statementsThe financial statements developed by an entity aims to reflects its financialperformance for supporting the decision-making of end-users. In this context, the ASIC(Australian Securities Investment Commission) has provided suggestions to the non-3
professional investors for evaluating the financial performance of a company through itsfinancial statements analysis. The suggestions are provided on ASIC for protecting theinterests of investors so that accurately interprets the financial information for makinginformed decisions for investing (Australia, 2011). The financial performance of WesfarmersLimited, Australian retail giant, can be based from the financial statements net figures ofincome statement and balance sheet as per ASIC guidelines. The income statement analysishas depicted that the company has recorded a net increase in its profit in the year 2017 ascompared to the financial year 2016. The underlying net profit has increased to 22.1 per centin the year 2017 and has reached to $2,873 million. The earnings per share have increased to21.6 per cent and return on equity has reported an increase to about 12.4 per cent in the year2017 as compared to the previous financial year. The increased profitability of the companyhas resulted in raising the dividend per year from $1.86 per share to $2.23 per share in theyear 2017 (Wesfarmers 2017: Annual Report). The increased cash inflow of the company onaccount of its improved return on capital has helped in to expand its business operations. Asreflected from the director’s report of the company, its improved financial performance hasresulted from its recent conglomerate structure. The company is presently emphasizing on itsstrategy of providing improved return to shareholders through realizing larger returns form itsindustrial businesses in Kmart and Bunnings. Important Financial Figures in Understanding the Financial Performance of theCompanyAs analyzed from the case study, the ASIC has regarded the financial figuresdisclosed in the director’s report in order to gain an insight into the profit or loss realized by acompany. The directors of Wesfarmers have also discussed the financial performance of thecompany in the annual report through the help of some key financial figures (Hussey andOng, 2005). The financial figures include profit after tax, earnings per share, return on equityand dividend per share. The financial figure relating to profit after tax depicts to the investorsregarding the percentage of money earned on per dollar of revenue. The investors can gainan insight into the net profit realized by a company after meeting its all tax relatedexpenditure. It enables the investors to analyze the profitability of a company without theimpact of operating leverage thus the investors can actually predict its real financialcondition. The earnings per share depict the amount of money earned by a company per everyoutstanding share of stock. It helps the investors to predict the financial profits that acompany can provide to its shareholders. The return on equity provides a measure of theprofitability of a company in comparison to the net investment (Wesfarmers 2017: Annual4
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