Financial Accounting Issues Report: Business Plan and Ratios

This report delves into critical accounting issues relevant to business planning and financial management. The analysis begins with an examination of the essential components of a business plan, emphasizing the significance of assessing financial needs for long-term sustainability, particularly in th...Read More

Accounting Issues
2017

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By student name
Professor
University
Date: April 29 , 2018.
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Contents
Analysis.....……………………………………………………………...........................................................................3
References………………………………………………………………………………………………………………………………………5
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1)Writing the business plan includes several layers, assessing the overall financial needs
of the business with respect to the desired assets is very important to keep the business going in
the long run. It orders to open a contracting school, the business would require specific amount
of funding will be required for getting a place on rent or lease for starting the contracting school,
also funds would be required to get equipment that the business would require for training the
people. The contracting school would also require huge amount of advertisement so that people
would know that such kind of venture has started. The company also needs to tie up with other
companies to provide placement to trained people (Abbott & Kantor, 2017).
2)There are various types of financing option for any company, they can get both short
term and long-term funds depending on their needs. The aim should be to maintain the highest
level of liquidity possible so that the company does not face any problems in future. Short term
methods of financing involve, taking long from banks, investing in funds, taking short term loans
from money lenders etc. Long term financing would include getting funds from financial
institution, long term loans from banks etc. Thus, the requirements of the business form the basis
of the type of financing that the company will need. In the starting it is always better to self-fund
operations as the chances of profit generation in low (Alexander, 2016). The first aim always is
to break even and then think of taking loans to fund the operations of the company. Thorough
market research is needed so that the company can evaluate the different financing options that it
has. In the initial stage the aim should be take the least amount of risk possible and invest in
secured options.
The approach would be to contact banks and financial lenders and pitch in your business to them,
also there are options of angle investors who can invest in startups at zero rate of interest.
Generation of funds also requires being clear about the requirements. Since it is a start up the
first step should be arrange funds from friends and family and boot strap the entire thing and
later as the business grows more effluent methods can be considered like issuing of debentures
shares etc. that can help in providing the necessary amount of funding to the company (Chariri,
2017). The company can also invest in mutual funds, bonds, shares etc. and earn effective
amount of interest that can help them in expanding their business further.
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3)Financial ratios are one of the best measurement of the health of any organization and
can help in analyzing whether the business is doing well or not. There are many such ratios that
the company can consider as a benchmark to calculate their success and the more efforts that
they would require. These ratios can be calculated on the basis of the financial information of the
company that are present in the income statement and balance sheet of the company (Maynard,
2017).
The two most important financial ratios that would help in ascertaining the overall
financial health of the company are-
Current Ratio – Current ratio helps in calculating the overall ratio between the current
assets and current liabilities of the company. It helps in making an analysis of the overall
liquidity of the company. It helps in understanding whether the company is having enough
current assets to repay its liabilities. It also helps the investors in gaining an insight on the overall
performance of the company (Dichev, 2017). In case of a new business it would be the best to
make sure that the company is having efficient amount of assets to pay off its liabilities and thus
it can be ensured that the business is stable and moving.
Current ratio = Current Assets/ Current Liabilities.
Return on Assets – Return on Assets helps in making an analysis on how well the
company is using its assets to generate income. A company buy assets to support its business
operations. For example, the contracting business will buy land, equipment etc. to support
training of people. The higher the ROA the better it is. It also helps in ascertaining the long-term
efficiency of the business (Chiapello, 2017). The basic formula for ROA is –
ROA = Net Income / Average Total Assets
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References
Abbott, M., & Kantor, A. (2017). Fair Value Measurement and Mandated Accounting Changes: The Case
of the Victorian Rail Track Corporation. Australian accounting Review.
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-
431.
Chariri, A. (2017). FINANCIAL REPORTING PRACTICE AS A RITUAL: UNDERSTANDING ACCOUNTING
WITHIN INSTITUTIONAL FRAMEWORK. Journal of Economics, Business and Accountancy, 14(1).
Chiapello, E. (2017). Critical accounting research and neoliberalism. Critical Perspectives on Accounting,
43, 47-64.
Dichev, I. (2017). On the conceptual foundations of financial reporting. Accounting and Business
Research, 47(6), 617-632.
Maynard, J. (2017). Financial accounting reporting and analysis (second ed.). United Kingdom: Oxford
University Press.
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