Chapter 3: Using Financial data to Measure and Assess Financial Performance
Part 1 of Chapter 3
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- Created on: 30-12-14 10:26
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- Using Financial data to measure and assess performance
- Weaknesses of financial data in judging performance
- published accounts focus on profitability and liquidity of business and ignores other objectives that may be more important for the business
- different accounting methods may be employed
- financial performance is influenced greatly by external factors
- some valuations are partially subjective
- some firms may 'window dress' - manipulate accounts to provide a favourable view on the date they are prepared
- accounts show what has happened not why they happened
- Strengths of financial data in judging performance
- can help to calculate profit levels of a firm
- can help people to understand sources of capital and see how reliant it is at borrowing
- can help to assess whether it is worth buying shares in the business
- can help people to discover company's liquidity position
- can help to note if profit is of high quality
- can help people to calculate net assets of a business, to assess its overall worth
- can help to see if profit is being utilised in a sensible way
- can help people to assess the size of the business
- Company Accounts
- Users of company accounts
- managers
- employees
- owners and investors
- governement
- competitors
- suppliers
- customers
- local community
- required by law in order to show financial strengths and weaknesses of an organisations recent performance and current situation
- can be used to assess the potential of a business
- both documents are based on historical data and show what has happened in the recent past
- Purpose of company accounts
- securing and maintaining finance
- statutory obligations
- monitoring and controlling performance
- Users of company accounts
- Weaknesses of financial data in judging performance
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