Financial Accounting Question Answer 2022

Running head: FINANCIAL ACCOUNTING
Financial Accounting:
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to question 1:......................................................................................................................2
Answer to question 2:......................................................................................................................5
Sub part (a):.................................................................................................................................5
Sub part (b):.................................................................................................................................7
References and bibliography:..........................................................................................................8

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Answer to question 1:
Financial statement of an entity reveals financial and operational performance of the
entity for a particular period. It also shows the financial position of the company as on a
particular date. There are two important parts of the financial statement, one is the Income
statement for a particular period and the other is the statement of financial position or the balance
sheet. The profitability of the entity can be analyzed from the income statement and the financial
position can be judged from the balances sheet. Financial statements are prepared with an
objective to evaluate the financial and operational performance of the entity and to serve the
different stakeholders with their financial information needs (Williams and Dobelman 2017).
Different stakeholders have different information needs based on their interest in the entity. In
the following parts, the different information needs of the stakeholders have been pointed out.
Managers:
Managers are responsible for managing the regular business activities and they are
always striving to achieve the overall organizational goals with the efficient and optimum
utilization of the resources of the company. They need to take various important business
decisions and formulate strategies with the objective of achieving the mission and vision of the
company. Therefore, they need information about the financial and operational performance of
every department of the company and information related to the overall financial performance of
the company (Williams and Dobelman 2017).
Investors:

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Investors are the key stakeholder of any company. They invest their funds into the
business with an objective of proper utilization of their fund and earning considerable amount
return from the investment. Therefore, they are interested about the profitability of the company
as well the sustainable growth and future profitability of the company. They are also worried
about the security of their investment for which they analyses the short term and long-term
solvency of the company (Williams and Dobelman 2017).
Lenders:
Lenders are the short term and long terms finance provider of a business. They are
interested in a stable interest on their finance and timely repayment of their debt. Therefore, they
are interest in short-term liquidity and solvency of the entity. They assess the current assets and
current liabilities for understanding the short-term solvency of the entity. Lenders, who provide
long-term finance to the company, are interested in the long-term solvency of the company. For
assessing the long-term solvency of the business, they need information about the capital
structure and the trends in their profitability (Williams and Dobelman 2017).
Employees:
Employees are the main work force of the company. They execute the strategies, mission,
and vision of a company into reality. They are interested in fair remuneration for their services,
appreciation of their performance and a good work environment. They are also concerned about
their job security in a long-term perspective (Slack and Campbell 2016). Therefore, they need
information about the company’s human resource policies and sustainability of the entity.
Suppliers and other creditors:

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Suppliers and other creditors supplies materials on credit to the entity. They are interested
in timely payment of their debts. They always want to know the short-term solvency of the entity
to which they are supplying materials on credit. Therefore, they want to know the profitability
and the current financial position of the entity (Slack and Campbell 2016). For this, they want to
know the ratio of current assets to the current liabilities.
Customers:
Customers are the main target stakeholders of every entity. Every business activities are
oriented towards providing quality goods and services to the customers with an objective to
maximize the customers’ satisfaction. Customers are interested in quality if the products and
services and a decent customer support services. They are also concerned about the availability
of the products and services. To ensure all of those perspectives, customers need to know the
information about the sustainability of the business and the support services and customer
relationship policies of the company. To ensure a long-term availability of the products and
services, they need to know the sustainability and the growth of the company (Slack and
Campbell 2016).
Governments and their agencies:
Government is interested in collection of tax revenues from the business entities.
Therefore, they need information about the profit and fair business policies of the entity.
Government and other agencies need information about the statutory compliance of the statutory
rules and regulations of the country and disclosures in accordance with the accounting standards.
Public:

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Business entities are a part of the society. They are created in the society with an
objective of serving the people of a society. People of a society need to know information about
the sustainability of the company and the company’s social responsibility initiatives (Slack and
Campbell 2016).
After knowing the individual information needs of all those stakeholders, now we need to
know the sources from which all the stakeholders can gather all those information. There are two
common sets of financial statement; one is the income statement and the other is the statement of
financial position or the balance sheet. Income statement contains all the information related to
the profitability of the business and the balance sheet contains all the information about the
assets and liabilities of the company. Financial statement also contains notes, which explains the
components of the financial statement in details. Hence, it can be commented that, from these set
of financial statement, all the stakeholders can get their needed information. Sustainability report
can give the stakeholders more information about the company’s policies and growth of the
company (Slack and Campbell 2016).
Answer to question 2:
Sub part (a):
For the analysis of the financial statement and present a comparative analysis, the Barratt
Developments is selected from the FTSE 350 companies. In the following table the various
profitability, efficiency and capital structure ratios have been computed and presented for the
year 2016 and 2017 (Barratt Developments Annual Report 2017).

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Sub part (b):
Ratio analysis is a financial statement analysis tool, which can be used for analyzing the
financial statement of a company to understand the profitability and solvency of the company. in
the sub part (a) above, various profitability, solvency, efficiency and leverage ratios have been
computed. Based on those ratios, the financial strengths and weaknesses of the Barratt
Developments can be pointed out. It can be observed that the company is having a good gross
profit margin as well as net profit margin. It can also be observed that there is a significant
increase in the gross profit margin and net profit margin, which implies a managerial efficiency
of the company. The current ratio is 3.25:1 for the year 2017 and it is 3.30:1 in the year 2016. It
is much higher than the standard current ratio of 2:1, which implies a good short-term solvency
and it can be identified as one of the strengths of the company. On the other hand, the inventory
period is almost a year, which can be identified as a weakness of the company. Receivable
collection period is near about 14 day maximum which is implies an efficient assets management
of the company and it can be identified as strength for the company. Payable payment period is
150 to 160 day, which is giving the company an extended credit period. Based on the leverage
ratios it can be commented that they are having a good combination of debt and equity in their
capital structure which can be identified as a strength for the company (Barratt Developments
Annual Report 2017).

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References and bibliography:
Barratt Developments 2019. (2019). [ebook] Available at:
https://www.barrattdevelopments.co.uk/~/media/Files/B/Barratt-Developments/reports-
presentation/2017/barratt-ar17.pdf [Accessed 10 Aug. 2019].
Bebeşelea, M., 2014. Accounting information and its users. A study of the supply and demand of
accounting information in Romania. Economics, Management, and Financial Markets, 9(4),
pp.150-157.
Crowther, D., 2018. A Social Critique of Corporate Reporting: A Semiotic Analysis of Corporate
Financial and Environmental Reporting: A Semiotic Analysis of Corporate Financial and
Environmental Reporting. Routledge.
Omar, N., Koya, R.K., Sanusi, Z.M. and Shafie, N.A., 2014. Financial statement fraud: A case
examination using Beneish model and ratio analysis. International Journal of Trade, Economics
and Finance, 5(2), p.184.
Palea, V., 2014. Fair value accounting and its usefulness to financial statement users. Journal of
Financial Reporting and Accounting, 12(2), pp.102-116.
Palepu, K.G. and Healy, P.M., 2013. Business analysis and valuation: Using financial
statements, text and cases.
Sadalia, I., Rahamani, N.A.B. and Muda, I., 2017. The Significance of Internet Based Financial
Information Disclosure on Corporates’ Shares in Indonesia.

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Slack, R. and Campbell, D., 2016. Meeting users’ information needs: the use and usefulness of
Integrated Reporting.
Williams, E.E. and Dobelman, J.A., 2017. Financial statement analysis. World Scientific Book
Chapters, pp.109-169.