logo

Answer 1: Financial Statements for Managing Companies

10 Pages3351 Words210 Views
   

Added on  2020-04-07

About This Document

(a) The financial statements include the income statement, cash flow statement, balance sheet and statement showing changes in equity. (b) The financial statements include the income statement, cash flow statement, balance sheet and statement showing changes in equity. (c) The financial statements include the income statement, cash flow statement, balance sheet and statement showing changes in equity. (d) The financial statements include the income statement, cash flow statement, balance sheet and statement showing changes in equity. (e

Answer 1: Financial Statements for Managing Companies

   Added on 2020-04-07

ShareRelated Documents
ACCOUNTING FOR MANAGERS
Answer 1: Financial Statements for Managing Companies_1
Answer 1.(a)The financial statements include the income statement, cash flow statement, balance sheet and statement showing changes in equity. These statements have some individual importance to the potential users. The income statement gives information about the financial performance of the company whereas the balance sheet tells about the financial position. These statements are used by different users for taking different types of decisions. For example, the creditors determine whether it should give credit to the company or not, the lenders determine the credit worthiness of the company whereas the investors decide whetherto invest in the company or not (Loughran, 2011).It is not easy to understand the information provided in the financial statement. A proper analysis has to be done. In order to carry out this analysis, some financial ratios are calculated. These financial ratios give us a better knowledge of the company in every aspect (Harrison, Horngren & Thomas, n.d.).Let ud first understand the types of financial ratios. There are four types of financial ratios and they are as follows:Liquidity ratio.Solvency ratio.Profitability ratio Efficiency ratio1.Liquidity ratio.This ratio is calculated to check whether the company is able to manage its working capital requirements properly or not. A company is said to have a good liquidity position when it is able to pay the short term debts without any failure. The two types of liquidity ratio that has been calculated by me is current ratio and quick ratio (Libby, Libby & Hodge, 2012).Current ratio Particulars201420152016Current asset 69,000 77,000 87,000 Current liabilities 41,000 42,000 34,000 Current ratio 1.68 1.83 2.56 The current ratio is calculated by dividing the total current assets by the total current liabilities. A current ratio that is greater to one is considered to be very favourable for the
Answer 1: Financial Statements for Managing Companies_2
company as it is an indication that the company is regular in meeting its short term obligations. The current ratio was good for the company but it is going on improving overthe years. The current ratio of 2016 is 2.56 which means that the current assets of the company is 2.56 times the current liabilities of the company (Spiceland, Thomas & Herrmann, 2010).Quick ratioParticulars201420152016Current asset 69,000 77,000 87,000 Inventories 41,000 44,000 49,000 Current liabilities 41,000 42,000 34,000 Quick ratio 0.68 0.79 1.12 Quick ratio creates a better understanding of the company’s liquidity position than the current ratio. This is because it excludes inventories while calculating the quick ratio as inventories cannot be converted into cash so easily. Therefore, it provides better information than current ratio. This ratio is also considered god when higher. The ratio is increasing over the years, as we can see it has increased from 0.68 to 1.12. 2.Solvency ratio.Solvency ratio is determined to check whether the company has adequate cash flows to pay off the liabilities of the company. Debt ratio is a kind of solvency ratio that help ud toknow the ratio of total liabilities to total assets (Kimmel, Weygandt & Kieso, 2012).Debt ratioParticulars201420152016Total liabilities 1,16,000 1,38,000 1,43,500 Total assets 2,66,000 2,82,000 2,87,000 Debt ratio44%49%50%3.Profitability ratio.A company can survive only when it has sufficient profits. This ratio gives an outlook of the financial performance of the company. The following table helps us to conclude that there is a decline in the profits of the company. There may be various reasons of the decline which can be identified only after having a detailed study about the company and its workings (Weygandt, Kimmel & Kieso, n.d.).Operating profit marginParticulars201420152016
Answer 1: Financial Statements for Managing Companies_3

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Assignment On Accounting for Managers
|9
|3280
|38

Corporate Governance and Ethics in Financial Management
|8
|1630
|65

Analyzing Financial Statements of Printers by Choice Ltd using Ratio Analysis
|9
|1946
|307

Hospitality Finance And Revenue (pdf)
|15
|3343
|18

Financial Ratios and Analysis for ABC Ltd
|11
|1963
|69

Accounting Ratio Analysis: Doc
|13
|3527
|330