Understanding and interpreting financial statements Coursework

Understanding and translation financial contestations - Coursework ExampleUnderstanding and interpreting financial statementsFinancial Statement Analysis involves the c atomic number 18ful selection of data from the financial statements in rear to assess and evaluate the firms historical financial performance. The study focuses on the performance of Morrisons and Tesco companies for 2008 and 2009. The financial statement compendium is based on the financial statements of both Morrisons and Tesco companies. The four groups are Turnover, Solvency, Profitability, and Liquidity. Reasons for using ratio analysis. The financial statement ratio analysis is conducted to compare the financial performance of Morrisons and Tesco over time (2008 and 2009). Both companies are competitors in the United Kingdom Grocery Chain trade segment. The financial statement analysis is used to aid management or any interested company to make more informed decisions. Ratio analysis is a better alternativ e when compared to using perfect(a) hindsight, gut feeling, or plain guesswork in terms of making decisions. According to Gibson (2008), financial statement analysis is useful in improving all decision making activities. Since, the financial statement ratios are taken from both companys audited financial reports, the analysis is based on actual scotch (buy and sell, etc.) conditions occurring in the United Kingdom during 2008 and 2009. Economic conditions include supply, demand, equilibrium, scarcity, opportunity make up, and government (tax and other legal interventions) conditions. (Baumol, 2009). legal brief description and justification of the ratios The financial statement ratios used in the Morrisons research are split into four sections. Liquidity ratios provide information about the firms ability to pay its accepted obligations and continue trading operations In terms of justification, the ratios will indicate whether the company has to find other sources of bullion i nflows to pay for the companys maturing obligations. The leverage ratios taproom the companys use of debt to finance assets and operations in terms of justification, the ratios would help determine the feasibility of increasing, decreasing, or retaining the companys current debt structure. The cost management ratios measure how well a company controls cash in terms of justification, the ratios will be used as a basis for improving current cash management policies. The profitability ratios measure earnings in relation to some base, such as assets, sales, or capital. The profitability ratios will apologize if the company passed (reach benchmark in generating profits) or failed (generated loss) in the prior accounting period. Financial statement analysis is profitable complement to other decision making tools (Besley, 2008). Critical evaluation of the Limitations of the Analysis with regards to both the lendable information and the generic limitations of Ratio Analysis There are lim itations on the comparison of the financial statements of the 2 companies with regards to both the available information and the generic limitations of ratio analysis. The preparation of financial statement ratios would be a failure. First, the financial statement data of both Morrisons and Tesco may be erroneous Second, both companies may be using different accounting principles. To remedy the situation, the industry ratio trends can help to