Ask a question from expert

Ask now

Understanding Financial Statements

14 Pages2914 Words173 Views
   

Added on  2020-06-03

Understanding Financial Statements

   Added on 2020-06-03

BookmarkShareRelated Documents
Understanding financialstatements
Understanding Financial Statements_1
Executive SummaryFinancial statements are quite useful for analysing financial performance in the bestpossible manner. Deepwater Ltd planning to acquire Maxshale Ltd will provide competitiveadvantage as profits will be maximised. Hence, financials will be assessed for making decisions.
Understanding Financial Statements_2
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................1Part One...........................................................................................................................................1A) 1. Description of transaction in financial statements........................................................12. Explanation of transactions in specific statements.............................................................1B) 1. Difference between tangible and intangible non-current assets....................................22. Criteria to meet as an asset.................................................................................................2Part Two...........................................................................................................................................2A) 1.Computation of gross profit margin...............................................................................22. Application of trend analysis in total revenue....................................................................33. Application of trend analysis in Oil and Gas exploration..................................................34. Reason for change in profits...............................................................................................4B) 1. Application of financial technique................................................................................42. Indicator of financial performance.....................................................................................43. Analysis of case study........................................................................................................5Part Three.........................................................................................................................................5A) 1. Appropriate financial technique....................................................................................52. Financial performance indicators.......................................................................................63. Reason for change in financial position.............................................................................6B) 1. Calculation of financial ratios.......................................................................................62. Comparison and recommendation to buy company...........................................................7Part Four...........................................................................................................................................71. SPECIFIC part in cash flows..............................................................................................72. Derivation of figures from financial statements.................................................................73. Improvement in working capital........................................................................................74. Reasons for improved cash flow........................................................................................8Part Five...........................................................................................................................................81. Preparation of business report............................................................................................8CONCLUSION................................................................................................................................9REFERENCES..............................................................................................................................10
Understanding Financial Statements_3
INTRODUCTIONBusiness requires making decision for acquisition on several factors. In this context,financial statements should be interpreted thoroughly so that no wrong decisions may be madeby the company. Present report deals with Deepwater Ltd which is energy explorationorganisation. It is planning to acquire Maxshale Ltd engaged in Shale Gas exploration that couldhelp company to take advantage of this new resource and earn profits. Thus, financial statementsare used to take decision whether to acquire firm or not.Part OneA) 1. Description of transaction in financial statementsThere are various transaction which are reflected in either income statement or balancesheet. The description related to each transaction are as follows-Description 1Deepwater Ltd received and paid invoice for £50,000 from legal advisors which will bereflected in Statement of Profit or Loss (SPL).Description 2Organisation paid £20,000 for registration of patents will be reflected in Statement ofFinancial Position (SOFP) in assets section.Description 3Company owes the subcontractor amount of £90,000 and as such, it will be reflected inSOFP as it is a liability of company to pay creditor. Description 4The interest charges paid by the company is non-operating expense and as such, it will beshown in SPL (Titman, Keown and Martin, 2017).2. Explanation of transactions in specific statementsThe transaction identified in above description can be listed as followsDescription 1- Deepwater Ltd paid legal fees to legal advisors and as such, this amount isclassified as operating expense under SPL and will be deducted from gross profit.1
Understanding Financial Statements_4

End of preview

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

Related Documents
Financial Analysis of Melmotte Ltd
|9
|2098
|69

Understanding Financial Statements: Assignment
|12
|2828
|96

Unfolding Understanding Financial Statements
|12
|2622
|220

Financial Statement Disclosures
|15
|2183
|88

Prepare the Acquisition Analysis
|4
|861
|518

Consolidated Financial Statements and Business Combination Analysis
|11
|1273
|88