Accounting & Finance (Essay Sample)

Accounting & Finance
Author’s Name
Institution’s Name
Task-1
1 There are number of users which specifically count under a financial statement. Some of the major users of a financial statement are shareholders, investors, creditors, Bankers and Government authorities; however the information which they would like to examine varies from user to user (Cokins, 2001). There are different needs of each of the user and they subject to revive and utilize the same
2 There are number of regulatory standards which specifically present and influence over the financial statements like International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Standards (GAAP), which are some of the major standards specifically used to make financial statement (Goektuerk, 2007).
3 The implication of every user varies from organization to organization, as shareholders and investors would implicate their analysis on the basis for the investment and its related purpose, while bankers would like to have information regarding the debt and equity
4 There are number of laws and regulations which specifically associated with the financial statements like laws of revenue, expenses and net income recognition.
Task-2
Income statement
INCOME STATEMENT FOR THE YEAR 2012





2012






Sales




4041550

Less: Cogs



2504975






Gross profit



1536575






Less: Expenses





Wages expense


1007000


Utility expense


47000


Insurance expense


399000


Rent Expense


0


Fuel Expense


8800


Office supplies expense

9300


Advertising expense

37500


Bad debt expense


48200


Depreciation expense

571300


Interest expense


20125


Lease expense


39000






Net operating profit/Loss


-650650






Add: Interest income


114736

Add: Service sales



546800

Add: Gain from land sale


750000

Add: Gain from equipment sale

216000

Add: Gain on investments


10000






Net income



986886

Balance sheet
BALANCE SHEET AS AT 31 MAY 2012.





2012

Assets





Cash




388,1526

Marketable securities


136000

Accounts receivables


1476012

less: Allowances for bad debts


-177121

Interest receivables



0

Prepaid insurance



260836

Prepaid lease



39000

Prepaid rent



29050

Office supplies



13220

Inventory



738,650


Current assets


4,802,832

Office furniture



72300

Equipment



1,981,000

Motor vehicle



171,400

Long-term notes receivable


285,000

Land




1,180,000

Patent




84,000


Noncurrent assets


3,773,700


Total assets


8,576,532

Liabilities




Accounts payable



1,009,619

Wages payable



46,000

Interest payable




Short-term notes payable


510,000

Deferred revenue



11,200

Dividends payable



1,130,000

Bond interest payable


3,244

Bond premium



1,376


Current liabilities


2,711,439

Long-term notes payable


1,320,000

Bonds payable



100000


Total Liabilities


4,031,439

Stockholders’ equity




Common stock



1,000,000

Additional paid in capital


2,128,406

Non shareholder capital


526,000











Retained earnings



790,687


Total stockholders’ equity

4,545,093


Total liabilities and sh.equity

8,576,532

Financial Ratios
 

Profitability Ratios

1

Net Profit margin

24.42

2

Gross Profit margin

38.02

3

Return on Equity

21.71

4

Return on Assets

11.51

The profitability ratio in the table illustrate that the overall profitability of company is quite well because the in the year 2012 the company has net profit margin is 24.42 % that is one fourth of total revenue (Kaplan and Anderson, 2007). This means that the total income of the company is a quite good after excluded all expenses and taxes. The net profit margin of company is showing the upward trend if we compare it to the last year NPM that’s indicating company is consistently performing. While the Gross profit margin of company is just 14% greater than net profit that shows company has very good control on its expenditure which does not affect the earning of company at optimum level. This is good sign for company and its efficiency of operations as well. The gross profit margin does not provide exact position of company but it helps to understand the pricing strategy of company and give good information about financial health of company.
Return on equity and return on assets indicate the profitability of company in terms of equity and assets respectively (Maher, Stickney and Weil, 2001). It also helps analyst to understand efficiency of company in utilizing the equity and assets of company to earn profit. The RO...