FINANCIAL ANALYSIS

Financial Analysis

Task# 1

Debt Collection Policies

Companies carry out the process of their sales and purchases on credit basis that is the amount that has to be paid by the company for the purchases becomes a liability for the company, whereas the sales of the company that is made to the customers is considered as an asset as the payment is to be received later. Customers to whom the sales have been made on credit are known as the debtors on accounting and financial terms or the transaction made to record these sales are classified as accounts receivable (Edwards, 2004). Debtors are the customers that owe the payment to company whereas creditors are those from whom we purchase goods and thus we owe money to them. Discounts are received by the company on purchases and making the payment within the given time that has been specified. However discount has to be allowed on the collectables from the debtors to receive the cash on time, and give an incentive to the customers for making their payments instantaneously.

Sales can be made either on cash or on credit basis. If the sales have been made on cash, the amount is received immediately however in case of credit sales debtors are allowed time to make their payments. Companies have different policies for collecting the amount due. Moreover there are situations where the debtor is unable to pay off the amount owed to him by the company and thus such debt is recorded by the company as bad debt. Debt collection policy and procedures enable the company to have an organized approach for collecting its debt in an effective and efficient manner (Rao, 2010). It makes certain that debtors are monitored and this would enable them to make timely payments. The company needs to ensure that it does not allow its debtors a long time period to make the payment for its debt as it becomes difficult to collect the amount later. The main objective of collecting accounts receivable is to increase the working capital of the company, it is one of the most liquid assets of the company and the more efficient an organization is to collect its debt the better its cash position will be and it would help the company in supporting its cash requirements. An improvement in the policy for receiving the payments from the debtors can bring greater financial gains to the firm, as the lower the amount outstanding will be the lesser will be the chances for bad debts being written off and hence this would enhance the profitability of the firm. Therefore firm need to have a debt collection policy that will help them in receiving the cash immediately and thus the firm would have fewer bad debts to be written off (Nikolai, Bazley & Jones, 2009).

Task # 2(a)

11. Financial and Non-Financial Performance Indicators

Both financial and non-financial indicators assist in evaluating the performance of the company. Financial performance can be examined by the monetary results that a firm is ...