Question

What do you feel is the difference between financial reporting and financial statements?

What ratios might you use to evaluate managements performance, and why is this important?

Answer 1

Question -1

1. Financial report :-

- Financial report is about that transactions that have financial report

- Particular financial reports are only for management and some reports are communicated to people

Eg:- Bank statements, Debtors analysis report

-Financial reports for internal process should follow format set by the management.

-It is used as method of attracting potential investors, shareholders, stakeholders.

- Financial report is compilation of several financial statements in the year.

- It provides financial information about an entity in such a way that users are able to make decisions.

- It is governed by International Accounting Standards Board (IASB)

2. FINANCIAL STATEMENTS

- Financial statements are the documents that present the income information for a business at any given point of time.

- It does not includes information about expenses or purchases

- It provides only income of the business.

-Financial statements are of following :-

. Statement of financial position

. Statement of comprehensive income

. Statement of cash flows

. Statement of changes in equity

- These statements are prepared on regular intervals and have to follow applicable laws.

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Question 2

Types of ratios

1. Profitability Ratios :-

Profitability ratios determines overall effectiveness of management regarding sales and investements.

2. Efficiency Ratios :-

Efficiency ratios evaluate turnover and return on investments.

3. Liquidity Ratios :-

Liquidity ratios helps in eavaluating the firm ability to meet its current obligations.

I.e ability of company to convert current assets into cash.

4.solvency ratio :-

Solvency ratios help in evaluating the ability of company to raise capital and pay its obligations.