Question

A. Briefly explain why each of the following would want to review the Financial Statements of a specific business.

1)Potential customers:    

2)Future employees:

B. 3)   Provide any 5 P&L items (Revenue or Expense) and explain how you would budget for them.

Answer 1

Financial Statement for potential Customers -

Generally customers use financial statements to analyse the position of the entity if they want have a long term relation ship with the entity, The type of goods they manufacture , Quality, the costs they are incurring .Because ultimately all the burden passes on to customer along with the profit margin. They also check if there is any litigation going on inrespect to goods they manufacture . They also check warranty cost as the higher warranty cost leads to lower quality of goods

Financial Statements for Future employees -

Employees look into the financial statements to know the growth prospects . If the entity grows so the employees also grow. Employee costs in the profit and loss. They check the employee benefits costs and also provisions for retirement benefits as a percentage of sales so that they can know how good the compensation is.

Budgeting for various profit and loss items -

A) Sales budget - While preparing sales budget the finance team has to collect required data from the marketing team inroder to know the demand in the upcoming future , Changes in price . Entry of potential new competitor . Change in government regulations which may lead to fall in demand, rise in prices etc

B)Advertisement Expenses - While preparing cash budget the company has to take into consideration any promotion to be incurred for new products. Change in prices of advertisement space in print and other forms of media. Any new brand ambassadors to be hired

C) Rental expenses - While preparing budget for rental expenses the company has to take into consideration various new office spaces . Potential requirements for additional godows and any change in the rental expense due to change in market terms

D) Finace cost - For finance cost the company has to look if it has taken any long term loans with floating rates and if the rates were to increase or decrease in the coming future and also check if any additional financing is required in the current period . Any transaction cost in reaktion to foreign exchange fluctuation etc

E) Provision for taxes - Taxes are also shown in the profit and loss account . While checking the provision for taxes current and deffered the company has to check if there is any change in the current tax rates and any tax credits have been received etc.