Question

Undertake your own research to collect three pieces of financial data. Each piece of data must come from a different source. Submit a copy of the data and your comments in response to these activities to your trainer/ assessor.

Summarise (80–100 words) the data.

Evaluate the usefulness of the data to those who might be required to provide a report on financial activity. 50–80 words.

Describe (80–100 words) how you could index the data to ensure it can be quickly located and referred to later. Be specific.

Answer 1

The sets of information which gives idea about financial health of an organization are financial data. All these information appears in the balance sheet.

Three pieces are as below:

No. 1) Cash: The source of cash is asset. Ending cash balance reflects in the amount. Higher cash balance indicates greater amount of liquidity. There are three activities in the process of getting the ending balance of cash – operating activity, investing activity, and financing activity; in each such activity cash may be used or generated; aggregating the balance amount through each activity will give total cash flow or used, which should be added to beginning cash balance to give the required ending cash.

No. 2) Accounts payable: The source is liability, more specifically “current liability”. This is the amount of suppliers which are not yet paid. It creates obligation of payment; therefore, it appears in the liability side. This is a part of working capital (= Current assets – Current liability). High amount of accounts payable decreases working capital, which can adversely affect on credit rating of the organization – lenders may not be interested of providing loan.

No. 3) Stockholders’ equity: The source is capital, which indicates ownership rights. The activities are raising capital, redemption of capital, buy-back from market, etc – if a company requires increasing capital, it should go for issuing shares. If this part is higher than total liability, the company has ownership-controlled. Raising funds through issuing shares are better in a sense that it doesn’t have to pay interest; therefore, there is no interest burden.

Usefulness of cash: This data is important, because without cash balance a business can’t be said having good financial structure. Actually, there may be high amount of net profit but if there is no cash, such profit can’t be utilized for growth. Liquidity reflects through cash, therefore, it should be positive one.

Usefulness of accounts payable: This data is important, because it indicates short-term obligation. A business requires smaller amount of accounts payable for increasing current ratio (= Current assets / Current liabilities). Therefore, its usefulness is to be a part of credit worthiness.

Usefulness of equity: It is required for raising capital, which is necessary for project finance. Since raising capital is interest free, it gives better control on business activity. But it has other limitation – issuing shares indicate selling of ownership which may affect on existing shareholders.

These data could be indexed through a unique number for easy future availability – suppose cash is 006, accounts payable is 009, and equity is 001. Once it is done, searching would be easy by putting the number only. There must be a field beside the unique number where the required period should be given; then the data relating to all transactions during that period should appear along with the ending balance. If there is no specification of period, the data should appear till date.