ACCOUNTING FOR BUSINESS

Accounting for Business: A Report

Accounting for Business: A Report

Introduction

This report reviews the financial performance of Fastenings Ltd for the years 2010-2011. In doing so, the report presents the company's financial ratios and variances with respects to income, expenditures and balance sheet positions. Ratios helped me to trace the company's historic performance, while budgeting variance enables me to suggest areas where budgeting could be improved to assist decision makers. The computation for the ratios and variances are given in the appended excel sheet. In this paper, only the summarized tables are of the ratios and variances are given to supplement the critical analysis. In the final section of this report, i.e. conclusion, this report sums up the overall performance and suggests areas for improvements.

Description and Justification

Financial analysis is an integral part of the decision making process. A detailed financial analysis of the Fastenings Ltd is provided here onwards, which encompasses various aspects of financial information. Financial ratio analysis will cover the profitability, efficiency, liquidity and the leverage of the company. The financial performance that follows is evaluated and analysed from the perspective of shareholder (Ehrhardt 2008 131). The analysis and findings would assist the CEO of Fastenings Ltd to make decisions to improve his company's financial performance.

The budget analysis of the company provides with the targets and constraints of the company and the accurate interpretation of the budget is vital in decision making. (Donovan 2006, Pp. 15-32)Budgeting is a part of the financial planning which is structured to feature projections on income and expenses of the company both short-term and long-term. Budgets includes the thorough budgeted balance sheet, a cash flow budget which features the flow of company expenses on monthly, quarterly, semi annually and on annually basis. Budgets have different purposes. An annual budget projects operating expense and revenue for a fiscal year. Operating budgets do not reflect the extraordinary expense and revenue of capital improvement. Capital budgets project expense and revenue associated with the acquisition of large, usually fixed assets, for example, a building, computers, or a new telephone system. It is better to create separate budgets for capital projects (Weygandt et al 1996, p. 801). Including one-time capital expense and revenue in an annual budget would distort operating revenue and expense.

In attempting to analyze financial statements through the use of financial ratios organizations should have the expertise to interpret them in order to bring about positive changing in the organizational performances. In ratios, liquidity ratio is of particular relevance for creditors. The overall liquidity ratio obtained by dividing the current assets from current liabilities. Current assets include primarily cash accounts, banks, accounts receivable and letters, values of easy negotiation and inventory (Weston 1990 295). This ratio is the main measure of liquidity; shows what proportion of short-term debts are covered by assets, whose conversion into money corresponds roughly to the maturity of debt. In contrast, profitability ratios like GP percentage measure the utility generating capacity by the company (Ehrhardt ...