Financial Reporting and Analysis for Business: A Comprehensive Report

This report provides a detailed analysis of financial reporting, encompassing its objectives, the regulatory framework, and the advantages it offers to various stakeholders. It explores key principles, including the distinction between IAS and IFRS, and the merits of IFRS adoption. The report includes an examination of financial statements like the statement of profit and loss, statements of changes in equity, and financial position statements, alongside their interpretations, specifically using data from Teco PLC. It also covers the attainment of targets through financial reporting and the importance of compliance with standards for transparency and investor attraction. The document highlights the importance of financial reporting in an economy, emphasizing the need to follow accounting principles to represent a business's true position for decision-making purposes. The report also discusses the importance of financial statements and their interpretations to evaluate a business and draw proper conclusions, assisting in making decisions for business expansion and growth.

Financial reporting

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK...............................................................................................................................................1
1. Financial reporting and its objectives.................................................................................1
2. Important principles in respect of regulatory framework...................................................1
3. Advantages that are attained by various stakeholders........................................................2
5. Various statements in respect of business..........................................................................3
6. Financial statements and there interpretations...................................................................6
7. Distinction between IAS and IFRS....................................................................................9
8. Merits of IFRS..................................................................................................................10
9. Fulfilment of IFRS and factors by which they are affected.............................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

INTRODUCTION
In an economy there is the need to comply with all the rules and regulations which have
been set by the authorities. In order to represent the true position of any business, it is important
that financial statements shall be made by following all the principles of accounting (Iatridis and
Rouvolis, 2010). The information that is presented in them can be used for the purpose of
decision making by all investors and stakeholders. The objectives which have been set can be
attained by formulating such policies which are helpful in this process. All the requirements in
this regard are explained in the below mentioned report. Various interpretations will be made
under it in context of Teco Plc.
TASK
1. Financial reporting and its objectives.
Financial statements are required to be prepared by all the organisations and for this
purpose it is needed that the entire concept shall be followed. For this they shall be identified and
this can be done by using the tool which is known as IFRS framework. All the estimates can be
made which helps in knowing the emerging standards. There is a guideline which is provided by
this framework and that helps in identifying the manner in which all the issues regarding which
no specifications are made can be dealt.
For the presentation of all transaction in most appropriate manner it is needed that all the
policies shall be followed and by the help of them interpretations can be drawn which helps in
making of correct decisions. In business there are various expenses, assets, incomes and
liabilities are there and it is required that they shall be identified, measured in correct manner and
that is mentioned in this framework. This helps in carrying out of business in such manner which
is most effective and then all the information that is provided will be used by all to take such
decisions which are beneficial for them (Epstein and Jermakowicz, 2010). So for this it is needed
that all the regulations shall be taken into consideration. By this the manner in which business is
processing and also its position can be determined. Using this data such measures can be taken
by which improvements are made in business.
2. Important principles in respect of regulatory framework.
Authorities who are held responsible shall make such theories which can be used to
evaluate l the issues which arise in business. For this conceptual framework will be used as in
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that all elements, characteristics and objectives in respect of financial statements is specified.
With the use of them data will be used to resolve various issues which arise in an organisation.
They prove to be useful for those who are involved in process of formulation of standards and
other rules (Nobes, 2014). All the factors which are to be discussed are provided under this in
concise manner so it proves more beneficial. It is very important that the rules shall be such
which are in accordance with policies of business. So it shall be ensured that they are made in
such manner only. Then it can be used by others for examination and also problems in reporting
can be dealt in proper manner by auditors.
3. Advantages that are attained by various stakeholders.
In business there are various activities which are carried out and in this process many
individuals are involved. They all are considered as stakeholders and some of them include
investors, customers, government, suppliers, shareholders and many more. They are related to
business in some or other manner as all hold certain interest in business and due to this they
require all the information in respect of business.
Stakeholders need all data so that they can make decisions with the help of which all
operations are performed in better manner and also earnings can be increased which is main
objective of any entity. The manner in which business is working since past years is to be
identified and for that information is attained with the use of financial statements and that helps
in determining the financial position of it. This is required to be known by all so that they can
take any decision. Also all the assets and other resources can be maintained and utilised in best
possible manner.
The earnings which are made are to be retained so that they can be used in case of emergency
and for that it is to be known that how much change has taken place in this context. This can be
done by examining the statement of changes in equity. All the various aspects and elements can
be evaluated by stakeholders with the help of financial statements and by that they can analyse
the manner in which liabilities are required to be met (Agoglia, Doupnik and Tsakumis, 2011).
All obligations are identified and also the fact that whether they are dealt in appropriate manner
can be determined. This helps in knowing the changes that are to be made and also investors will
be able to decide the place where investment shall be made so that maximum returns can be
gained by them.
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4. Attainment of targets with the help of financial reporting.
Financial reporting is one of the most essential tool which can be used by any
organisation for the achievement of several objectives that are set. By using this all the
competitors who are present can be determined and also the performance can be evaluated. By
doing so the manner in which work is performed by rivals is identified and this helps in making
comparison (Financial Reporting, 2017). On the basis of findings it is possible to design the
measures which are to be taken so that further improvements can be made.
All the mentioned standards are to be complied with in the making of accounts and this
helps in ensuring proper transparency. All the investors will be attracted by this as they can get
the true picture of business and this is beneficial for them in the process of decision making.
These are the regulations which are developed by specified regulatory authorities. So this helps
in providing the outsiders and all stakeholders with the required data that they can use for various
purposes which are advantageous for them. In addition to this company will also be benefited
because of this as investments will be increasing and this leads to rise in overall profitability of
organisation. Also all the activities and operations that are undertaken in business are performed
in much better manner and this is useful in achievement of all the targets and goals which are pre
defined in organisation.
5. Various statements in respect of business.
a) Statements of profit and loss
Particulars Amount
Sales 285100
Less: Cost of sales -195300
Gross profits 89800
Rental income 1600
Loss on revaluation of investment property -3300
Loss on sale of inventory -400
Operating expenses -43100
Profit from operations 44600
Bank interest -1030
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Preference dividend -1330
Profit before tax 42240
Tax expense 12000
Profit after tax available for equity
shareholders 30240
b) Statements of changes in equity
Particulars
Ordinary
capital
Retained
earnings
opening balance 26700 23300
Dividend paid -5340
Profit from current year 30240
Closing balance 26700 48200
C) Statements of changes in financial position
Particulars Amount
Current Assets
Inventory 12930
Trade receivables 18000
Bank -530
Total current assets 30400
Non Current Assets
Investment property 18000
Land and property 80000
Plant and equipment 22400
Total non current assets 120400
Total assets 150800
Liabilities and equities:
Current liabilities
Trade payables 15700
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Provision for tax 12000
Deferred taxation 6900
Total liabilities 34600
Equities:
Revaluation reserves 28000
Retained earnings 48200
Ordinary shares 26700
10% redeemable preference shares 13300
Total equity 116200
Total equities and liabilities 150800
Working note:
Calculation of Depreciation:
On Land and property:
Property 4000
Plant and equipment 3200
Total 7200
Charged to cost of sales 3600
Charged to operating expenses 3600
Above are mentioned the important accounts which are needed to be made by all the
businesses and they together are known as financial statements. They are required as on the basis
of them only it will be possible to evaluate the business and draw proper conclusions. Then they
can be used for making decisions so that business can be expanded by achieving growth. For the
identification of cash position it is needed that cash flow statement shall also be prepared. This
helps in knowing that whether all the cash resources that are there have been used by managers
in most effective manner or not (Costello, 2011). This helps in evaluation of performance of
employees. In this there are three categories which are made and all the transactions are recorded
under them. The classification in made as investment in investing, financing and operating
activities. The balances are required to be transferred from balance sheet and income statements.
In the given situation the amounts which shall be taken to it are rent and sales which are shown
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as earnings in profit and loss account. Also figure available in bank can be considered and
included. The amount which is available with business in beginning is matched with the closing
balance. All the transactions which took place during current period are represented so that it can
be examined that all entries in respect of it are made in proper manner (Altamuro and Beatty,
2010). All the allocations are tested to known there appropriateness and knowing true cash
position of company. On that basis changes will be made in future so that more benefits can be
attained.
6. Financial statements and there interpretations.
Income Statement
2016 2017
Turnover 53933 55917
EBITDA 2617 2185
EBIT 1386 887
Operating
Profit 1072 1017
Pre-tax
Profit 202 145
Profit After
Tax 256 58
Profit For
Financial
Year 138 -40
Retained
Profit 138 -40
Normalized
EPS 7.1 -1.02
Balance Sheet
2016 2017
Assets
Non Current Assets
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Intangible 2874 2717
Tangible 17978 18172
Investments 3395 2865
Other 4973 6682
Total 29220 30436
Current Assets
Stock 2430 2301
Debtors 5240 5654
Cash and
Securities 6778 7118
Total 14448 15073
Held for
Disposal 236 344
Total Assets 43904 45853
Liabilities and Equity
Liabilities
Current 17866 19405
Non-
Current 17422 20034
Total 35288 39439
Equity
Share
Capital 5502 5505
Reserves 3124 933
Shareholde
rs Funds 8626 6438
Minorities -10 -24
Total 8616 6414
Total
Liabilities 43904 45853
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and Equity
Valuation 2016 2017
Net
Tangible
Asset Value
Per Share p 67.58 43.71
Profitability
Operating
Margin % 1.25 0.23
Profit
Margin % 1.01 0.04
ROE % 4.6 -0.6
ROCE % 4.43 2.34
Financial
Health
Net
Gearing % 121.2 139
Interest
Cover x 2.12 1.05
Quick Ratio r 0.69 0.68
Current
Ratio r 0.82 0.79
Norm EPS
Growth % -22.86 -
Cash Flow
Cash Flow
Per Share p 26.7 25.26
CAPEX PS p 8.47 10.58
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Above presented are the important statements and ratios of Tesco Plc and they can be
used for making of proper interpretations that can be taken into consideration for making such
modifications by which business can be developed. In order to determine the profit position of
company various ratios are there and they include profit margin which is determined at 1.01 for
year 2016 and for 2017 it is 0.04. it can said that business is not operating in proper manner as
there is reduction in overall returns of business which is a disadvantage for it. It is needed that
whole capital shall be utilised in best manner and this can be determined with the se of return on
capital employed that in present situation is declining. This shows that company is not able to
make proper use of its resources and will have negative impact on it.
Current ratio represents the amount of current assets which are there in comparison to
liabilities. It is said to be good if lies at 2:1. In the given case this is not reached in both years and
is at very lower level which is not good for any entity. To know the ability of company to meet
its current liability, its liquidity shall be analysed and for that Quick ratio can be taken into
consideration. This is almost equal in all years and shows that there is no change which has taken
place in respect of aspect of meeting its obligation.
7. Distinction between IAS and IFRS.
In all the businesses there are various standards which are required to be followed and for
that a committee is established known as International accounting standards committee (Ball,
Jayaraman and Shivakumar, 2012). It is responsible for issuing best policies and they are
recognised as IAS. They help in making such financial statements in which there are very less
chances of occurring mistakes and due to this misrepresentation are decreased. The whole
process which is involved in this becomes more effective as the manner according to which
recording of transactions shall be carried out is clearly specified under them. There was an
acquisition that took place in 2001 in which board took over the committee made for making
standards. All the rules and standards which were earlier followed were modified by it and new
specifications were made under them and by that they are accepted at international level and are
called as international financial reporting standards. Various markets and businesses saw changes
due to this factor.
There are not many differences which exist among IAS and IFRS but some of them that
are present include the time of formation. All those that were made prior to 2001 are recognise as
IAS and after that IFRS came into existence. The authority creating them is also different as IAS
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was made by committee and IFRS by International accounting standards board. There are total
39 IAS and 9 IFRS which have been recognised by regulatory bodies. There are many
transactions which are to be entered in records and for that it is needed that proper instructions
shall be mentioned about their identification, measurement, presentation and disclosure (Barth
and Landsman, 2010). This condition is met in IFRS but was not there in IAS. So it is mandatory
for all to comply with the requirements which are mentioned in IFRS as only by doing so it will
be possible to carry out this whole process of reporting in most effective and efficient manner.
8. Merits of IFRS
There are various benefits which are gained by many people by using IFRS and some of
them includes that such financial information is provided which is comprehensive, timely and
accurate. All the data is presented in manner specified under IFRS and this makes it all the more
understandable for all as it is made in easy manner. All information is then considered by
investors and they are able to gain require knowledge from them which otherwise would have
been provided by professionals (Cheng, Dhaliwal and Zhang, 2013). Also all the deviations
which exist among standards at international level are removed.
Some of the other advantages which are received by them are as follows:
 Timely identification of losses: By the help of them all the losses are recognised on time
and this proves to be of great benefit to all lenders, investors and stakeholders. By the
help of this the communication among company and management has improved to a
great level.
 Comparability: All the companies are able to compare their financial statements in
better manner by the use of IFRS. For this it is required that all the organisations shall use
the same standards which others are following.
 Appropriate accounting and financial reporting: By using IFRS it is possible for the
companies to main their accounts in most standards manner and this enhance the
comparability. All the barriers which are made on trade with other countries are removed
due to standardised reporting.
 Transparency and consistency enhancement: In order to develop trust among
investors it is required that transparency shall be maintained in financial statements as
then only better relations can be established among all the nations.
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 Easy contact with foreign capital market: As the comparison will be made easier with
the use of same kind of standards everywhere, it will be easier to have access to foreign
capital markets (Li, 2010). They will be able to make investment in the best deal
available by choosing from all the options.
 Easy comparison of financial statements with other competitors:
In global economy there is high level of competition which is present and so it is required
that proper comparison shall be made and for this IFRS can be taken into consideration.
This helps the investors in making such decisions which will be in overall benefit of all.
 Relevance:
All the information can be presented in true and fair manner by using IFRS which have
been set. Company’s creditability is represented properly in form of profit and loss
statements and for detailed position balance sheet can be utilised in which proper layout
is made. Also chances of any fraud or manipulation is reduced due to this and it is a
positive factor.
9. Fulfilment of IFRS and factors by which they are affected.
In the process involved in formation of financial statements many standards are taken into
consideration by all the organisations. IFRS are used with consistency in all the countries and
this increase the level of transparency so that all activities are carried out in best manner. by the
following of it all the contingencies are eliminated. In all the countries some or other authority is
there who is responsible for formulating required standards but there are some limitations on
them by which operations are not performed in best way (Council, 2010). To deal with them
IFRS are made which remains same in all situations and there are no differences which exist
among them as they are acceptable at international level. But the process uses financial reporting
in which some of the steps are complicated which reduces the level of effective analyzation. This
problem can be resolved by taking help of professionals who will perform such actions that
reduces such issues and make the whole system better.
CONCLUSION
From the above mentioned report it can be concluded that IFRS are the main element in
the process of financial reporting as by them only all the accounts are maintained in manner
which represents true picture of business. This also assists in solving all the issues in better
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