Analysis of Financial Statements: Users and Decision Making Terms

This report provides a comprehensive analysis of financial statements, focusing on key financial decisions such as borrowing and allocation of funds. It addresses various aspects including horizontal analysis, future value of money, investment appraisal techniques, and payback period calculations. The report also explores systematic risk, the CAPM formula for calculating the cost of equity, and methods for reducing risk in investment portfolios. Furthermore, it identifies and discusses seven users of financial statements, detailing their specific interests and usage of financial ratios. The report also delves into critical decision-making terms, including financing decisions, investment decisions, profit decisions, and working capital decisions, elucidating their roles in organizational financial management. The conclusion emphasizes the importance of these factors for long-term business success. This student-contributed assignment is available on Desklib, a platform offering a wealth of study resources.

Summative Assessment
Report

Contents
INTRODUCTION...........................................................................................................................1
Section A .........................................................................................................................................1
SECTION B.....................................................................................................................................2
Discuss seven users of financial statements and their usage with the financial ratios. .............2
Discuss the following decision making terms with their roles....................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Finance is one of the most important aspect and thus it can be said that it is the most
valuable aspect for a company as it is related with the inflow and outflow of funds and that too in
an impactful manner (ABU-TAPANJEH and AL-SARAIRAH, 2021). The report covers all the
related aspect of finance and its retrospective factors and elements that covers a lot of value in
the current market scenario. apart from that the report covers various facets like NPV, IRR,
ARR, payback period which carries a lot of significance in the industry for each and every
business irrespective of the sector in which they are operational.
Section A
1 Financial decisions within an organisation are concerned with borrowing and allocations
of funds. Which of the following is not one of the financial decisions a financial manager
can be expected to participate in?
Answer Bookkeeping decision
2 Horizontal analysis is used in the review of a company’s financial statements over a
period of time.
Answer True
3 Your boss is not good in financial management. He asks you what the term future value
of money means. What would you tell him?
Answer It measures the nominal future sum of money that a given sum amount is worth at a
specified future date assuming a certain interest rate.
4 Which of the following is not an investment appraisal technique?
Answer Calculus
5 You have been given the following information:
Investment £50,000
1st year returns £30,000
2nd Year returns £30,000
3rd Year returns £30,000
What is the payback period for the project?
Answer 1 year 8 months
6 Which of the following is an example of systematic risk?

Answer Inflation rates
7 CAPM formula is used to calculate the cost of equity. When using the CAPM formula
what is risk free rate of interest?
Answer Interest that an investor would expect for a risk-free investment over a period of time.
8 You have been provided the following information:
Current Assets £20,000
Non-current Liabilities £20,000
Current Liabilities £10,000
What is the current ratio?
Answer 2
9 Which of the following is a way of reducing risk in a portfolio of investments?
Answer Diversification
10 Users of financial statements are interested in different sections of the financial
statements. Liquidity does not demonstrate the ability of an organisation to pay its short-
term obligations as they fall due.
Answer False
SECTION B
Discuss seven users of financial statements and their usage with the financial ratios.
Following are the fundamental clients of budget summaries:
 The executives: The administration of the business utilizes the monetary information
which is available in the budget summaries of the business. The administration utilizes every one
of the information to decipher the exhibition of the business and contrast it and that of others in
the business or with various year's presentation. They take a gander at the productivity and the
liquidity of the business.
 Contenders: These are the organizations which are working in the business and rivaling
the business being referred to. They observe the various information in the explanations which
would assist the business with deciding its cutthroat techniques for the business.
 Clients: these are the clients which draw in with the business and its items and
administrations. They view fiscal summaries of the organizations to get the products in perfect
sum and for the right expense.

 Representatives: The staff individuals from the business request the assertions to
comprehend the benefit position of the business and actually look at their own compensation and
augmentations in same.
 Government: the public authority specialists utilizes the assertions to check whether the
business is making full instalments which they are obliged to pay considering the
 Speculation Analysts: the investigator utilizes the data connected with the organizations
and analyses the exhibition to be utilized by the growing financial backers.
 Financial brokers: the monetary data gives the financial backers the dependable
information about the organization and they can make speculations as needs be.
Discuss the following decision making terms with their roles
 Financing Decision : This alludes to the significant choice that is needed by the
organizations to take because of the extent of value and obligation capital that the
business need to keep into their capital design. This assumes a significant part in the
business as it gives experiences to the administrators on the way in which they can back
its resources and take diverse venture related choices. This choice is assumed the premise
of weighted normal expense of capital. This structures the reason for the valuation of an
organization by its financial backers. It is mostly connected with the financing blend of
the business. The fundamental target of this choice is to keep an ideal capital design
which is the adequate blend of obligation and the value which would assist the business
with keeping up with its monetary danger.
 Venture Decision : This choice of the business features how the monetary assets of the
business that are brought up in the financing choices will be put resources into the
various types of resources (Herawati, N.T., and et.al., 2020). The amount of the assets
will be taken up by the current and non-current resources of the business. The
administration centers around putting the assets in those specific resources which will
cause the business to acquire most noteworthy conceivable return. The drawn out
speculation choice are known as the capital planning strategies and the present moment is
known as working capital administration.
 Profit Decision : This choice of the business is connected with the appropriation of the
benefits which have been procured by the business among its investors. The primary
point of this business choice is to conclude whether every one of the benefits of the

business will be appropriated among the investors or a portion of the sum is needed to be
reinvested in the business for the future development possibilities.
 Working capital choice : This choice of the business remembers the transient liquidity of
the business. This choice keeps up with the capital strategies of the business to target
dealing with the current resources of the professional the harmonies between the money
and money reciprocals, inventories and borrowers. This guides the business system to
guarantee that the business works at an effective current resources and put them to the
most ideal use.
CONCLUSION
It can be concluded that there are a number of factors that possess a lot of importance and
thus has been analysed and evaluated in a very detailed manner in the above report and thus a
company also has to be very precise regarding such factors of the business in the longer run.

REFERENCES
Books and journals
ABU-TAPANJEH, A.M. and AL-SARAIRAH, T.M.K., 2021. The Availability of Forensic
Accounting Application Factors to Enhance the Auditors Efficiency in Jordan. The
Journal of Asian Finance, Economics and Business, 8(3), pp.807-819.
Oesterreich, T.D. and Teuteberg, F., 2019. The role of business analytics in the controllers and
management accountants’ competence profiles. Journal of accounting & organizational
change.
Burnett, C. and Merchant, G., 2020. Literacy-as-event: Accounting for relationality in literacy
research. Discourse: Studies in the cultural politics of education, 41(1), pp.45-56.
Herawati, N.T., Dewi, L.G.K. and Dewi, G.A.K.R.S., 2020, December. Development of
Android-Based Accounting Cycle Learning Applications to Improve Technology Skills
in Accounting Students. In 5th International Conference on Tourism, Economics,
Accounting, Management and Social Science (TEAMS 2020) (pp. 98-104). Atlantis