Analysis of Corporate Failure and Financial Performance Measures

This report addresses two key questions regarding corporate failure and financial performance. The first question explores whether corporate failure can be avoided irrespective of external factors, emphasizing the importance of internal factors such as robust business models, effective debt management, and strategic planning to mitigate risks and achieve business goals. The second question examines the bias towards financial performance measures, highlighting how financial data, derived from annual reports, is used by various stakeholders to assess a company's financial health and make informed decisions. The report also touches upon the tools used to measure financial performance, such as the Balance Sheet, Income Statement, and Cash Flow Statement, while acknowledging that the measures used may vary among stakeholders. The report references relevant academic sources to support its arguments.

Running head: FINANCIAL AND ECONOMIC INTERPRETATION AND
COMMUNICATION
Financial and Economic Interpretation and Communication
Name of the Student:
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1FINANCIAL AND ECONOMIC INTERPRETATION AND COMMUNICATION
Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................2
References:.................................................................................................................................4

2FINANCIAL AND ECONOMIC INTERPRETATION AND COMMUNICATION
Answer to Question 1:
Corporate failure is the non-performance of the business to generate revenues and
earn profits. There can be many reasons for this failure which can internal as well as external
factors. The external factors are the ones which cannot be controlled by the business. The
internal factors are the ones which can be controlled by the business to avoid corporate
failure irrespective of its external factors. The most important internal factor is the planning
of a strong business model having efficient strategies.
It is vital to do the planning appropriately to help the business achieve its goals. The
formation of the business should be for good reasons as it will help to make the right choices
(Morris 2018). Another factor is the use of debt into the business. The usage of debt should
be as minimal as possible. If a business involves itself in a lot of debt it lowers its flexibility
to compete into the market and the cash management also becomes poor. It is of utmost
importance to always have a reserve fund to help the business meet its needs in case of any
emergency. The rapidly changing business environment should be considered while making
the decisions.
Answer to Question 2:
There exists a biasness regarding the financial performance of a business as many
believe it to a more accurate way of determining the performance. Financial performance
measurement helps to analyse the ways in which the company generates revenues and gains.
The data for this analysis can be obtained from the annual reports of the companies relevant
to the financial year. The data collected can further be used to perform calculations and
conclude its results. The conclusions are used to compare the performances of various firms
across the same industry.

3FINANCIAL AND ECONOMIC INTERPRETATION AND COMMUNICATION
There are several stakeholders who use the financial data for their decision making
regarding the financial performance using the annual reports. The amount of money it is
spending on its expenditures also helps to determine its net profit (Baños-Caballero, García-
Teruel and Martínez-Solano 2014). The valuation of its shares will help to determine its
customer satisfaction ability. However, the measures used to analyse may not be the same for
all the stakeholders. Some may use technical charts while others may perform calculations to
make their decisions. The Balance Sheet, Income Statement and Cash Flow Statement are
some of the common tools used to measure the financial performances of a business entity.

4FINANCIAL AND ECONOMIC INTERPRETATION AND COMMUNICATION
References:
Baños-Caballero, S., García-Teruel, P.J. and Martínez-Solano, P., 2014. Working capital
management, corporate performance, and financial constraints. Journal of Business
Research, 67(3), pp.332-338.
Morris, R., 2018. Early Warning Indicators of Corporate Failure: A critical review of
previous research and further empirical evidence. Routledge.