Financial Statement Analysis Homework - Finance Module, 2021 Analysis

This assignment provides a comprehensive analysis of financial statements, encompassing ratio analysis, research methodologies, and case studies. It begins with an analysis of CEO contributions to financial statements, major issues of old age CEOs, and benefits of young age CEOs, followed by directional and non-directional hypotheses. The assignment then delves into scientific investigation methodologies, including qualitative research using structured interviews, advantages and disadvantages of this approach, and relevant research questions and hypotheses. Furthermore, it includes an examination of the role of archival data and surveys, potential validity threats, and mitigation strategies. Finally, the document presents a detailed profitability and financial structure analysis of Bowmen Ltd for the year 2021 and a three-year period, offering recommendations for financial management based on the analysis.

Online test

Question 1
 What is the contribution of CEOs in preparation and presentation of financial statements?
 What are the major issues of old age CEOs in management of financial statement?
 What are the benefits associated with young age CEOs in functioning of financial
transactions of an organisation in less risky manner?
Question 2
Directional Hypothesis
H1: Developing a Sound Financial Plan is main contribution of CEOs in preparation and
presentation of financial statements.
H2: Inability of earning management is the major issue of old age CEOs regarding management
of financial statement.
H3: Higher knowledge of current technical practices is the major benefit associated with young
age CEOs in functioning of financial transactions of an organisation in less risky manner.
Non-directional Hypothesis
H1: Role of a Sound Financial Plan in development of effective and accurate financial
statements of an organisation.
H2: Role of inability in earning management influence over capacity of old age CEOs to perform
effective financial transactions or practices of an organisation.
H3: Contribution of higher knowledge current technical practices over improvement of young
age CEOs functioning regarding financial transactions of an organisation in less risky manner.
Question 3
Directional Hypothesis
H1
 Dependent Variable: Developing a Sound Financial Plan
 Independent variable: Contribution of CEOs
 Control variable: Good financial statement
H2
 Dependent Variable: Inability of earning management
 Independent variable: Issue of old age CEOs
 Control variable: Management of financial statement

H3
 Dependent Variable: Higher knowledge of current technical practices
 Independent variable: Role of Young age CEOs
 Control variable: Financial transactions of an organisation in less risky manner
Non-directional Hypothesis
H1
 Dependent Variable: Development of effective and accurate financial statements
 Independent variable: Role of a Sound Financial Plan
 Control variable: Financial statement
H2
 Dependent Variable: Role of inability in earning management
 Independent variable: Capacity of old age CEOs
 Control variable: Financial transactions or practices of an organisation
H3
 Dependent Variable: Improvement of young age CEOs functioning
 Independent variable: Contribution of higher knowledge current technical practices
 Control variable: Doing financial transactions in less risky manner
Question 2
Part I
From the case discussion, it can be clearly stated that yes, henry have meet the trademark
of scientific investigations which means that all the question was asked as per the desired
guidelines and format. In carrying out some study, the principle of using experimental
methodology is that we can equilibrium concentration and correctly calculate, communicate
efficiently, rationally draw inferences as well as logically establish hypotheses. It is observed
that manager of Hrm have first observe the phenomenon closely in order to make sure that
proper steps can be made to determine the problems which are faced by employees. Henry then
determine the actual variables due to which the problem is rising with employees which further
support to make a suitable hypothesis regarding detail investigation or research that actually
defines the reasons of problem. The next step henry made to detect the information by asking

question to the staff members and organise in a proper format so that detailed analysis can be
done and the main point can be interpreted in a manner that help to make steps which resolve the
issue for the basic level. In last henry made proper conclusion in defining the recommendation
which can be further used and implemented in a way that will definably reduce the chances of
less employee engagement. These steps will also help to prepare in advance for any such risk
that can build conflicts or issues within employees which lead to decrease commitment in
allotted work.
PART II
i) Age of student in the survey is ordinal because there is some sort of order which is
given to them regarding satisfaction level.
ii) Marital status is Nominal categorical variables which define the specific category of
married and non-married etc.
iii) Professional rank is category of ordinal scale which states that quantitative attribute
has a different category such as higher, middle etc.
iv) It is ratio scale as student are graded by the professor in a systematic ratio format
which makes them first of last in the class.
v) Weight in the consumer satisfaction survey is basically a ratio scale in which every
individual is recorded as per their weight and some time they can be approx. or the
observation may vary.
Question 3
Part 1
1)
Qualitative research is used for the present scenario. This consists of collecting as well as
analysing non numerical data. In the present scenario, research will be conducted on SME’s in
order to know the importance of accounting practice. The chosen qualitative research tool is
structured interview. This is selected because this will an interview in which there are pre
determined set of questions which will be asked. These questions will be related to the factors
that will help in evaluating the reason to use accounting practise.

This research tool will provide the most appropriate data for attaining research objective as
similar questions will be asked from different respondents. This will create easy way to know
what is the major reason for not doing the accounting practise in right manner.
2) The selected qualitative research tool is structured interview.
Advantages
 There is lesser interview bias in this because the questions are pre decided. The judgment
factor of the interviewer is removed.
 There is faster execution
 This process is easy as every respondent is asked same question hence it is easy to
compare and evaluate
Disadvantages
 It is not flexible because the interviewers have pre decided questions, they cannot ask
anything else.
 There is limited scope
 Researcher cannot alter the questions
 If there are some complex questions, there is possibility that respondent can get confused.

Part 2
i)
Archival data is inappropriate for this study because it is related with the information taken
from someone else’s file. This will not be ethical to use data about SME from other’s file.
ii)
Survey will help in describing the characteristics of all respondents
 Face to face interview will have more impact on the respondents and accurate data
will be used in the research
 Surveys in this research will help to answer in a more prominent manner where valid
and accurate answers are given
 This is more flexible method to get data from SME’s.
(iii) Formulate the research question for your study. Specify the null hypothesis that is being
examined in this study.
The research question is

What are the different reasons for a SME to use conservative accounting practise.
H0- SME’s do not use conservative accounting practise
(iv) What are potential internal and external validity threats to this study? Propose possible
actions to mitigate those threats.
Internal threat is that if respondents (employees of the organisation) are not providing accurate
data and giving biased answers.
The problems for external validity is that if secondary sources used in the research are not
reliable and valuable.
(v)
All respondents have to give consent that their information will be used in the research and they
have to give non biased answers.
Question 4
A) Comment on the profitability and financial structure for the year 2021
Ratio analysis is an easy form to develop an opinion over the profitability and viability of
the business concern. From the ratios provided above, it can be seen that in the year 2021,
company has seen reduction in the both gross profit margin and net profit margin from previous
years. Gross profit margin has seen a decline from last year by only 1% which could be due to
changes in regular operations. However, net profit margin has seen a sharper decline from
previous year which could be result of increase in non-manufacturing overhead or decline in
non-manufacturing revenues. This is not a positive sign for the profitability performance of the
company.
In the same manner, it can be seen that debt to equity ratio of the company has increased
from previous year in the year 2021. This ratio shows the relation between debt and equity and
capabilities of the equity of the company to finance debt. Higher ratio indicates that debt
component of company has increased more in comparison to the equity component which
indicates a riskier position for the shareholders of the company. Further, return on equity has also
been declined which means that net income in relation to equity shareholders has declined.
However, this should not be ignored that return on equity around 10% is considered pretty good
and is further evaluated against industry average. Return on assets determines the relationship of
assets with net income and higher return on assets shows that asset performance has improved.
Further asset turnover ratio determines the relationship of assets with turnover of the company

and higher turnover ratio is indicator of better performance of assets in generating the sales and
is a positive indicator for the financial structure of the company.
B) Comment on the profitability and financial structure for the three-year period
It can be seen from the ratios provided that company has seen ups and downs in its profit
margins over the period of three years. Profit margins assess the operational capabilities of the
companies to result in profit. It can therefore be seen that company has fluctuations in
performance but not sharp decline and can be seen relatively stable. Further in the financial and
turnover ratios it can be seen, company has at some point made positive changes and at some
points has seen decline over the period of three years. However, the underlying point is that
company has been overall able to deliver a stable performance and the fluctuations in the 2020-
21 performance can be attributed to market disruptions due to pandemic.
C) As per the analysis it is recommended that Management of Bowmen Ltd, the financial
position of the company is fluctuated in the year of 2021 in which identify Net profit margin is
decreasing in broad manner as compare of 2020 and return on equity is 11% in 2021 in compare
of 2019 & 2020 which are 10% and 12%. Along with there is identifying high Assets turnover
that present bad position of the company. As per the analysis of three-year activity it is saying
that overall financial structure of business in fluctuation different years so for this require to
focus on various financial activities in proper manner.