Understanding Financial Statements (Summative Assignment) Essay

Understanding Financial Statements (Summative Assignment) - Essay Example This causes controversies within the organization (ii) The company should institute a good renumerations policy that will not bring controversies among the members. The policy should set the salary towards performance and there should be relation between them. The company should also have control systems that are geared to budgeting. The systems should propagate the vision ad mission of the organization of making profits. This will also deter other mechanisms that may hinder the profitability of the firm. The income statements of Sandrell Company have revealed the money that company generated, the money spent and the profit. The gross margin has increased from 10% to 19.4% from 2012 to 2013.Ordinarily the gross margin indicates the percentage of sales that is available for the expenses and also revealing the profits. Sandrell company has doubled its gross margin implying that it will have excessive money to spend on other expenses and get enough money to venture on the expansion process to the Western Europe. This upward trend of the gross margin is good since the company will not suffer insolvency and therefore the profitability of the company will rise. This is a positive impact on Sandells financial performance. Profit margin reveals the profits per sales after the deduction of expenses from the sales. The profit margin has increased. This upward trend in the profit margin is vital towards the future expansion Sandells Company. Higher profit margin is essential for the growth of the company for it gives the company more advantage over its competition. This gives it protection and the cushioning and prevents the company from collapsing. This is a positive impact on the financial performance of Sandells financial performance. This will enable the company to increase its market share in the long run and experience increased profitability. Return of Capital Employed (ROCE) is vital for

Financial and Accounting Questions Essay Example | Topics and Well Written Essays - 1500 words

Financial and Accounting Questions - Essay Example include a systematic representation of all the financial transactions carried on by an organization. These financial transactions are first identified, recorded and then communicated to the interested users in the form of financial statements. The users can be either internal managers of the organization or the outsiders like the stakeholders of the company (Kimmel, 2011, p.5-6). Out of many uses of these financial statements to its users, decision making is one of its most crucial aspects. Interpretation and financial analysis of these financial statements facilitates decision making process of a company. Business organizations have to take so many vital decisions on a regular basis. These strategic decisions, whether it is long term or short term, can either make or break a company. A company’s future is dependent the soundness and efficacy of the financial statements. Now in order to facilitate decision making, the financial statements prepared must exhibit relevant informa tion required by the managers to interpret and come to a decision. It includes information regarding relevant costs and revenues associated with it. A few examples of some vital decisions taken by an organization, requiring specific relevant information are as follows: Whether to make or to buy: Whether it is better to make the product within the company or whether it should be bought from outside by sub-contracting it to some other company is more often or not are to be decided upon the internal managers of the company. This often requires a comparative study of the relevant costs that are likely to be incurred in both the alternatives to come to the most cost effective decision. These costs data are provided by financial statements of an organization. Whether to increase output or sales: In order to decide whether to increase output or not, again a comparative study of the additional costs involved and the additional revenue that can be generated is required. This will give the es timate of the profits involved to help taking the decision. Decision to set up a new production line: Feasibility or viability of taking such investment decision requires projected figures of the running costs involved including the investments that would be required as well as the cash flows generated. These are all part of preparing financial statements that reflects these crucial financial elements of a business organization. Decision to put a hold or completely close down a business activity: This again requires information regarding avoidable costs and unavoidable costs involved in order to facilitate the management to take such decision which can only be analyzed through detailed financial statements of an organization (Bendrey, M, Hussey, R. & West, 2003, p.4-8). Thus, financial statements hold the key to various strategic decisions taken by business concerns in order to successfully run the business. b. Fundamental properties of reporting information identified by the IASB F ramework The International Accounting Standards Board (IASB) Framework, also known as Conceptual Framework provides information and guidelines that are to be maintained while preparing and presenting financial statements. The standards that are set out contains information regarding concepts about objectives of financial stateme