Financial Reporting Analysis: Primax Electronics Ltd Performance

This report provides a detailed financial reporting analysis, beginning with an introduction to financial reporting's purpose and context, including regulatory and conceptual frameworks, and identifying stakeholders and their benefits. The report explores the importance of financial reporting for organizational growth and objectives, followed by a reflection on financial statements, including the statement of profit and loss, changes in equity, and financial position, along with a comparison of cash flow with financial position and income statements. The report analyzes and interprets the financial performance of Primax Electronics Ltd using profitability, liquidity, solvency, efficiency, and investment ratios for the years 2016 and 2017. The differences between IFRS and IAS are also discussed, along with the advantages of IFRS and factors impacting compliance. The report concludes with a summary of the findings and provides references.

FINANCIAL REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
1. Outlining the purpose and context of financial reporting.......................................................1
2. Explaining regulatory and conceptual framework with its purpose, key principles and
qualitative characteristics............................................................................................................1
3. Determining stakeholders with their benefit through financial information...........................3
4. Importance of financial reporting for accomplishing organizational growth and objectives. 4
5. Reflecting financial statements...............................................................................................5
a. Statement of Profit and loss....................................................................................................5
6. Explaining and interpreting financial performance of Primax Electronics Ltd......................8
7. Difference among IFRS and IAS..........................................................................................10
8. Evaluating advantages of IFRS.............................................................................................10
9. Identifying degree of compliance with context of IFRS along with factors which impact
compliance................................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Financial reporting is disclosure of financial outcome and information to stakeholders
and management. It gives vital information on basis of financial activities and health of
organization to its stakeholders such as potential investors, government regulators, shareholders
and consumers. The present report will give brief discussion with reference to conceptual and
regulatory framework and interpreting financial performance of Primax Electronics Limited.
1. Outlining the purpose and context of financial reporting
Financial reporting are referred as records and documents which are collaborated for
tracking and reviewing about money to make business. The main objective of financial reporting
is to delivering information about share owners and lenders of business. It is a contributing as
essential contract among business as investors and lenders will be gaining right to know about
money spent or not. In the present economy, financial reporting has very huge role and
contributes to corporate governance. It serves for two primary objective as it provides help to
management for involving in effective decision making concerning to objectives of business
entity along with overall strategies. There will be appropriate disclosure in reports for helping
management to discern with its weaknesses and strength of business entity and overall health as
well.
In the similar aspect it is referred as mode for purpose of ensuring that business is
operating in efficient manner or not. In case, company is traded publicly then it is subject for
multiple strict regulations as they are enforced through Securities and exchange Commission. In
order for acquiring needs of users of its financial statements, organizations have to implement
system of accounting for giving the required information. It is very important for regulated
system for purpose of ensuring required information to its particular users in specific format. It is
very useful on basis of informational requirement as it is attained via framework of financial
reporting on basis of conceptual framework (Chen, Zhang and Zhou, 2018).
2. Explaining regulatory and conceptual framework with its purpose, key principles and
qualitative characteristics
The auditors, shareholders and directors are referred as main party with context of
traditional corporate model. The regulatory framework helps in setting regulations and rules for
accounting and at international level, IAS board provides very wide regulatory framework on
basis of International accounting standards. It will directly imply to each European listed
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organization especially companies of UK as there are two main sources such as accounting
standards and Companies act. The International accounting standards has directly issued
conceptual framework along with sets of financial reporting concepts as it sets out its objective,
describing reporting entity and with its boundary whereas qualitative characteristics of useful
financial information. This would be defining liability, asset, income, expenses and equity. The
criteria for considering liabilities and asset in recognition or financial statements and guidance
for ridding de-recognition. This will be measuring guidance and bases with the application along
with guidance and concepts on disclosure and presentation. Its principles are stated below:
 Information given through financial statements must be reliable and relevant where its
choice exists among approaches which are relevant and reliable which is mutually
exclusive.
 If information has capability for purpose of influencing economic decisions of users is
given on time for influencing those decisions.
 It could be reliable as it is dependent on users for representing it faithfully and shows
substance of transactions along with other undertaken events.
 Information could be comparable, understandable although it must be included in
financial statements in simple manner with its users (Amiram and et.al., 2018).
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Illustration 1: Qualitative characteristics
(Source: The Qualitative Characteristics of Financial Information, 2018)
 The qualitative characteristics such as comparability, timeliness, verifiability and
understandability directly enhances information usefulness such as relevance and faithfull
representation.
3. Determining stakeholders with their benefit through financial information
The stakeholders of financial information are stated below:
 Management: It has requirement of business for purpose of understanding liquidity, cash
flows and profitability of business at every month so it could make financing and
operational decisions related to business. It will be also having access for each records.
 Employees: A company might be electing for giving financial statements to its
employees along with appropriate explanation about contained documents. It will be
increasing employee level with employee engagement for business understanding as it
will help for gaining business financial position, growth and performance.
 Suppliers: There is huge necessity for taking decision that it is safe for organization's
external credit.
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 Owners: The main objective of owners in financial statements is for assessing returns on
investment with its appearance for future. Generally, owners will get access to all
financial files and records.
 Competitors: The organizations which are giving competition as business would be
attempting for gaining access to financial statements of its rivals for purpose of
evaluating financial position. It could be used for crafting necessary competitive
strategies.
 Government: In which authority of organization is situated with request of financial
statements for identifying that payments related to business is right amount of taxes along
with adherence to relevant laws.
 Creditors: Any organization for purpose of loaning money in business entity with need
of financial statements for estimating ability of borrower for paying back each loaned
funds on basis of charges related to interest expense (Users of Financial Statements,
2018).
4. Importance of financial reporting for accomplishing organizational growth and objectives
Financial reporting is valuable sources for informed decision making among the business
entity as it must be part of analytic strategy of company. Through leveraging financial reporting
and analysis must be directly integrated with solution of business management as it will be
capable for purpose of consolidating whole financial data in each location and subsidiaries,
drilling in its details and for extracting holistic view of data with objective of optimal financial
planning of business entity. This is huge requirement through law with tax perspective as
government uses report for ensuring about paying fair share of taxes. The business entities would
be using various management dashboards. In this aspect, the requirements of governments for
creation of documents has gathered whole industry of auditing firm as KPMG, PWC, Ernst &
Young and Deloitte which exist independently for purpose of reviewing financial reports where
process of auditing is legal requirement (Mayangsari, Murwaningsari and Lastanti, 2018).
During consideration of investing money in organization which will seem with
information to know about operation of business entity. It will be useful for investors as it
applies for banks and credit vendors with banks for purpose of considering company's lending
money. It is also mandatory for multiple stakeholders for owning firm's equity with appropriate
disclosure of liabilities and assets, cash cost and revenue of business entity. It serves as bedrock
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for other reports which should and can used for undertaking decisions. It is very crucial that
financial reports are highly accurate with its high possibility due to other management reports
based for ensuring decision. In this context, companies could trouble for using legacy method for
preparing financial reports and to observe benefits with use of financial dashboards.
5. Reflecting financial statements
a. Statement of Profit and loss
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b. Statement of changes in Equity
b. Statement of financial position
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d. Difference in cash flow with financial position and income statement
Cash flow statement reflects about cash position of business entity whereas profit and
loss statement represents information related to income and expenses. Simultaneously, financial
position statements shows assets and liabilities belongs to organization.
6. Explaining and interpreting financial performance of Primax Electronics Ltd
Primax Electronics Limited
Profitability ratio analysis Formulas
2016 2017
Gross margin 7267 7480
Net margin 1934 2057
Sales revenue 64329 60742
Gross margin ratio Gross margin / sales * 100 11% 12%
Net margin ratio Net margin / sales * 100 3% 3%
Interpretation: The above table is analysing profitability of Primax Electronics Limited
with context of gross and net profit ratio of two years 2016 and 2017. It has been evaluated that
gross profit margin is increasing from 2016 by 2017 as it is managing its cost of goods sold. In
the similar context, net profit margin has been extracted which is similar in both year as 3%.
Liquidity ratio analysis
Formula 2016 2017
Current assets 27800 29141
Current liabilities 22801 23115
Inventory 6671 6791
Quick assets 21129 22350
Current ratio Current assets / current liabilities 1.21 1.26
Quick ratio
Current assets - (Inventory +
prepaid expenses) 0.92 0.96
Interpretation: There is measurement of liquidity with context of current and quick ratio.
The ideal ratio is of 2 : 1 of current ratio but in Primax Electronics it is about 1.21 and 1.26 in
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2016 and 2017 respectively which shows lack in liquidity for purpose of repaying its current
liabilities. In the similar aspect, ideal ratio is of 1 : 1 and in the above scenario, it is less than 1
then it is not capable for paying its quick assets in short term duration.
Solvency ratio analysis
2016 2017
Total liabilities 26122 26390
Shareholder's equity 11000 11385
Debt-equity ratio Total liabilities / shareholders equity 2.37 2.31
Interpretation: There is measurement of debt equity ratio as it could be used for
leveraging ratios which tends for indicating stock or organization with huge risk to shareholders.
In the above scenario, companies risk is decreasing from 2016 to 2017.
Efficiency ratio analysis
2016 2017
Cost of goods sold 57062 53262
Average Inventory 7011 6731
Turnover or sales revenue 64329 60742
Receivables or debtors 13707 13120
Creditors or payables 16893 16350
Cost of sales 57062 53262
Stock turnover ratio (In times) 8.13 7.91
Receivables or debtors turnover ratio
(in days) (Debtors * 365) / Credit sales 77.77 78.83
Creditors turnover ratio (in days) (Creditors * 365) / COGS 108.05 112.04
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Interpretation: There is measurement of stock, receivables and creditors turnover ratio
which helps in measuring efficiency. It could be clearly viewed that there is not huge gap in
outcome from 2016 to 2017 as it could be stated that it is highly efficient in year 2017.
Investment ratios
2016 2017
Earnings per share
(Net income - preferred dividend) /
Number of shares outstanding 4.36 4.63
Dividends per share Annual dividends / Number of shares 2.1 2.5
Interpretation: The investment ratio as earning per share is increasing but with small
proportion then too its dividend per share in increasing with 0.4 in 2017.
7. Difference among IFRS and IAS
International financial reporting standards (IFRS): These standards are issued
through foundation of IFRS and IASB (International accounting standards board) for giving
common global language with perspective of business affairs so organization accounts for
comparable and understandable across the international boundaries (Koning, Mertens and
Roosenboom, 2018).
International Accounting standards (IAS): These are older accounting standards as
replaced through IFRS. IAS was first standards of international accounting issued through IASC
whose objective is to compare businesses through world, raise transparency and trust in fostering
investment and global trade and financial reporting as well.
Technically these standards are similar where IFRS is considered as current set of
standards which is reflective about alterations in business and accounting practices in these last
two decades. IAS was used to be prior before IFRS introduction (The difference between IAS and
IFRS, 2018). On the contrary, iAS is not outdated where only 9 IFRS issued and IAS is not
superseded through IFRS which is still in application. Henceforth, IASB has no longer issues
from IAS as any of the future standards will be replicated as IFRS and if in case, it is
contradicting to existing IAS then there will be following of IFRS. In the similar aspect, there are
tow main differences among IAS and IFRS which is stated below:
 Each IFRS would be considering on basis of decision within every standard as this will
be fitting with intention of IASB for adopting approaches on basis of principles for
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