Financial analysis of premier oil's Annual Statements (Research Paper Sample)

THE REGULATION OF FINANCIAL REPORTING

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Table of Contents
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Part 1 Regulation of Financial Reporting  PAGEREF _Toc374519646 \h
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1.1. Financial Reporting  PAGEREF _Toc374519647 \h
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1.3.1. Public Interest Theory  PAGEREF _Toc374519648 \h
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1.3.3 Economic interest group theory  PAGEREF _Toc374519649 \h
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1.4 Outline of the Report  PAGEREF _Toc374519650 \h
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2.0 Arguments for the Regulation of Financial Reporting  PAGEREF _Toc374519651 \h
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2.2 Financial crisis and regulation  PAGEREF _Toc374519652 \h
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3.0 Arguments in Favour of Deregulation of Financial Reporting  PAGEREF _Toc374519653 \h
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4.0. Conclusion  PAGEREF _Toc374519654 \h
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Part1: Financial Statement Analysis of Premier Oil Plc  PAGEREF _Toc374519655 \h
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1.0 Executive Summary  PAGEREF _Toc374519656 \h
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1.1The Industry Analysis  PAGEREF _Toc374519657 \h
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1. 2.Introduction  PAGEREF _Toc374519658 \h
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1.3. Profitability Ratios  PAGEREF _Toc374519659 \h
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1.3.1 Premier Oil’s ROE  PAGEREF _Toc374519660 \h
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1.3.2 Gross Profit Margin  PAGEREF _Toc374519661 \h
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1.3.3. Operating Profit Margin  PAGEREF _Toc374519662 \h
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1.3.4. Net Profit Margin  PAGEREF _Toc374519663 \h
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1.3.5. Return on Capital Employed  PAGEREF _Toc374519664 \h
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1.4. Liquidity ratios:  PAGEREF _Toc374519665 \h
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1.4.1 Current Ratio  PAGEREF _Toc374519666 \h
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1.4.2. Acid Test Ratio  PAGEREF _Toc374519667 \h
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1.4.3. Gearing ratio  PAGEREF _Toc374519668 \h
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1.4.4. Interest Cover  PAGEREF _Toc374519669 \h
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1.5. Conclusion  PAGEREF _Toc374519670 \h
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Reference List  PAGEREF _Toc374519671 \h
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Part 1 Regulation of Financial Reporting 1.0. Introduction
This report will discuss the regulation of financial reporting as undertaken in the corporate world in relation to the current high profile collapse of business entities. The collapse of business ventures has kindled a discourse on the issue of risks and the role financial reporting plays in initiating or aggravating the failure of businesses (Reed, Reed and Utting 2012). The major aim of this report will be to explore any existing theory or knowledge with a view of examining whether regulation of financial reporting is useful or detrimental to companies. Therefore, the arguments for or against the regulation of financial reporting will form the bulk of this report.
1.1. Financial Reporting
The transactional process in any organization ends with providing a summary of the business transactions. The summary is provided in the form of financial reports such as the balance sheet, cash flow statements, and income statements. It is mandatory for organizations for avail information that provides an objective and fair judgment of the company’s financial position (Greuning, Scot and Terblanche 2011). This information is useful for guiding investors in making any decision they might wish within the course of business operations. Further, filing of tax returns is a mandatory exercise for any company. Without proper accountings standards as well as good practices in reporting the financial transactions of the company, the management might as well be flouting company rules. In essence, financial reporting plays an important role in running the affairs of an organization (NYU 2010). 1.2. Definition of Regulation
Regulation of business activities refers to the direct or indirect measures instituted by government or relevant institutions to guide business operations (Easterling 2010). Emmanuel defines regulations as “all the measures and instrumentalities that are aimed at defining and laying down the limits of private enterprise, and controlling the various economic and business activities in a country” (p. 19). These regulations have an important part to play in any given company or industry. In examining financial reporting, the key regulatory references are financial reporting standards, legislation and company law. In the UK, financial reporting is regulated by the Company Acts as well as the International Financial Reporting Standards (IFRS). The Company Act provides that financial reporting be fair and reflect the rue position of the company (Greuning, Scot and Terblanche 2011). On the other hand, requirements of IFRS are mandatory for consolidated financial statements of companies listed in the London Stock Exchange.1.3. Theories of Regulation
Several theories underlie regulation of business operations. These include the public interest theory, capture theory and the economic interest group theory
1.3.1. Public Interest Theory Public interest theory indicate that regulation is necessary to correct market failure. The theories are based on the assumption that regulation will occur when there is a social gain that accrues to the public. This assumption is reinforced “by way that much regulation, particularly in financial reporting area, is introduced following some form of crisis or public dissent, usually caused by major corporate scandal involving fraud and suffering of the innocent” (Quick, Turley and Willekens 2011, p.267). Regulation, as supported by public interest theory, become imperative as it will improve problems inherent in the markets including, allocation, organization, and transactions. In addition, there is a possibility of correcting unfavorable market results.1.3.2 Capture theory
The capture theory of regulation holds that “no matter what the motive is for the initial regulation and the establishment of the regulatory agency, eventually, the agency will be captured (controlled) by the special interests of the industry being regulated” (Arnold, n. d. p. 304). Because of the capture theory, it is possible to avoid conflicts with the regulated company. However, the theory has some weaknesses as it does not explain why a branch can take over the regulatory agency.
1.3.3 Economic interest group theory
Interest groups are organizations that publicly promote issues that are beneficial to their cause. The economic interest group theory proposes that the main objective of a interest groups is acquisition of economic interests. The need for regulation would be to is to organize the affairs of the group as well as meeting the needs of individual members. According to this theory, regulation cannot be effective in meeting the needs of the public.
1.4 Outline of the Report
The remaining part of this report is organized in the following way. Section 2 will provide an analytical and critical discussion on why regulation is necessary through relevant literature and examples. Section 3 will provide evidence why regulation is not preferable, while section 4 will provide concluding remarks on this discussion.
2.0 Arguments for the Regulation of Financial Reporting
There are various arguments that support the regulation of financial reporting. It is one way of verifying the accuracy of financial records as well as determining the quality of a firm Indeed, the extent of regulation depends on standards put in place to ensure a company is stable. The regulation of financial reporting is effective way to verify the accuracy of financial reporting that can certify the quality of firm. Therefore, to the extent, regulation can depend on the regulatory standards to ensure the financial stability of company. 2.1 Reasons for regulation
It has been said that regulation is important because markets are not perfcet. There are myriads of problems in the market, some of which are brought inefficiencies of monopolies and lack of relevant information (Damodarann n.d). Market failure, is the absence of such critical information, will become the order of the day without the necessary legal framework brought by regulation. Companies often fear providing information, which might be used by competitors to attack them. Voluntary disclosure of certain information can work against the interest of the company and owners. In addition, regulation prevents redundancy in the company, enforcement costs and reduces the effects associated with market failure. Therefore, regulation will help a company allocate resources in an optimal way (Lee, Rosenthal & Gleason 2004). Financial reports are prepared by managers who are more knowledgeable as they are involved in the day-to-day running of the business. They have plenty of information that other people in the industry might not have, for instance, shareholders and stakeholders. However, although management might provide information that is relevant for funding purposes, the degree of completeness of such information might not be clear. Indeed, a company might not disclose all the information to users. Companies tend to provide information that suits their interest at any given time. Therefore, without regulation, co...