Question

Context – Organisation Summary

You must choose an organisation on which to base your answers, i.e. your answers must be set in the context of this specific organisation. Choose an organisation with which you are familiar. It must be a real organisation and the type of organisation you choose must be relevant to the questions

question below

Discuss how the contents of your organisation’s annual financial statements can demonstrate business performance to external stakeholders (for example lenders and investors). Within your discussion you are required to explain FIVE different financial ratios which would be of relevance to these stakeholders.

Note – you are not required to undertake any calculations.

Answer 1

There are various Stakeholders to an organization. The financial statements provide valuable informatin to them. Not all parts of the financial statemts are impotant for each set of stake holder. Financial statements provide the information as follows:                                                                                                          

Directors and Managers                                                                                                                                                 To establish overall objectives and periodical targets.                                                                                          Dividend decisions.

Shareholders To determine the going concern of the organisation.

Employees                                                                                                            To have a clear view about other operations of the organisation.

etc

Ratios provide vital information to the Stakeholders. Different ratios provide differnt information to the Stake holder

· The current ratio measures a company’s ability to pay off short-term liabilities with current assets:

Current ratio = Current assets / Current liabilities

· The debt ratio measures the relative amount of a company’s assets that are provided from debt:

Debt ratio = Total liabilities / Total assets

· The asset turnover ratio measures a company’s ability to generate sales from assets:

Asset turnover ratio = Net sales / Total assets

· The gross margin ratio compares the gross profit of a company to its net sales to show how much profit a company makes after paying its cost of goods sold:

Gross margin ratio = Gross profit / Net sales

· The book value per share ratio calculates the per-share value of a company based on equity available to shareholders:

Book value per share ratio = Shareholder’s equity / Total shares outstanding