Annual Report Report and Financial Statements Accounting Assignment Help

Assignment Task

Report on:
1. The purpose and use of the annual report and financial statements.
2. The linkages between financing, investment, and distribution decisions.
ABSTRACT
The purpose(s) of the annual report as well as financial statements and how to further derive value from the financial statements using financial ratio analysis. The limitations of financial statements and how to use ratio analysis to get comparable data and information. What the most relevant financial ratios are and their limitations. The BlackBerry organization story, what it entails, its background and a further look at its business performance and the projections that can be derived from their financial statements using financial ratio analysis. This report elaborates on how to measure the financial health of an organization using BlackBerry as a case study.
Table of Contents
Title Page1
Abstract2
Table of contents3
Introduction4
Scope4
Background4
The Body……………………….…………………….……………………………….…………..5
Problem Identification…….………………...………………………………………….……….5
The Role of Annual Reports and Financial Statements…………………………..…………..6
The six Ratios expanded………………….……………………..………………………………7
BlackBerry Background.……………………………………………………………...…..…9
Application of Financial Ratio Analysis on BlackBerry……………………………….……9
Conclusion………………………………………………………………………...………...…..10
References………………………………………………………………………………..….…..14
Introduction
Scope: This report will evaluate the purpose and use of the annual report and financial statements whilst appraising the linkages between financing, investment, and distribution decisions with a closer look at the BlackBerry business performance.
Every public company is mandated to produce annual reports and financial statements for its stakeholders, the intent of the annual report is to provide public disclosure of a company's operating and financial activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to evaluate the firm's financial performance and to make investment decisions. At its most basic, an annual report includes general description of the industry or industries in which the company is involved, audited statements of income, financial position, cash flow, and notes to the statements providing details for various line items. An annual report's primary audience is its shareholders, it is the way directors of the company advise shareholders on how the business has performed during the year. Arguably there are three distinct goals of the annual report for a public corporation: to promote the company, to display its financial performance and goals, and to meet regulatory requirements. Financial statements are written records that convey the business activities and the financial performance of a company however, financial statements have limitations and certain information would have to be derived through financial ratios that are applied on the information provided on financial statements. These enable line-item data comparison to reveal insights regarding profitability, liquidity, operational efficiency, and solvency. Through the ratio analysis method, a company`s performance is marked over time, while comparing a company to another within the same industry or sector. In summary ratios measure the relationship between two or more components of financial statements resulting in a clearer picture of the business in relation to the industry and other players. Through this report, the importance of financial ratios as well as their limitations will be explained using the BlackBerry financial statements as a case study.
Problem Identification:
The Role of Financial Statements and Annual Reports:
Financial statements alone have limitations therefore cannot be relied upon to an excessive extend. For instance, they are derived from historical costs, they are not adjusted for inflation, they may not contain some intangible assets as these are recorded under expenses, they only cover a specific period and, in some cases, they are not comparable to other players due to the different accounting methods available for accountants to use. Further to that, there is no predictive value placed on them because a company might record a good business month due to a contract and the same contract can be terminated the following month. Due to these limitations and more, financial ratio analysis becomes paramount, it is a quantitative method of gaining insight into a company's liquidity, operational efficiency, and profitability by studying its financial statements. There are six various kinds of financial ratios available:
Liquidity ratios, these measure a company's ability to pay off its short-term debts as they become due, using the company's current or quick assets without raising external capital. Liquidity ratios include the current ratio, quick ratio, and working capital ratio.
Solvency ratios also called financial leverage ratios, they compare a company's debt levels with its assets, equity, and earnings, to evaluate the likelihood of a company staying afloat over the long haul, by paying off its long-term debt as well as the interest on its debt. They measure the company's ability to meet its total financial obligations and long-term debts, a company must have more total assets than total liabilities to be solvent. Examples of solvency ratios include debt-equity ratios, debt-assets ratios, and interest coverage ratios.
Profitability Ratios convey how well a company can generate profits from its operations relative to its revenue. Profit margin, return on assets, return on equity, return on capital employed, and gross margin ratios are all examples of profitability ratios.
Efficiency Ratios also called activity ratios, these evaluate how efficiently a company uses its current assets and current liabilities to generate sales and maximize profits. Key efficiency ratios include turnover ratio, inventory turnover, and days' sales in inventory.
Coverage Ratios measure a company's ability to make the interest payments and other obligations associated with its debts. Examples include the times interest earned ratio and the debt-service coverage ratio.
Market Prospect ratios are commonly used ratios in fundamental analysis. They are used to compare publicly traded companies' stock prices with other financial measures like earnings and dividend rates. Investors use market prospect ratios to analyze stock price trends and help figure out a stock's current and future market value. They include dividend yield, P/E ratio, earnings per share (EPS), and dividend payout ratio. Investors use these metrics to predict earnings and future performance.
BlackBerry Background
Correspondingly the above ratio analyses and more can predict a company's future performance for better or worse similarly, based on these ratio analyses, this report will critically look at the BlackBerry financial statements to derive a general standing of the company. BlackBerry Limited has gone through several cycles of success and failures its stock price has effectively tanked from the highs of $146 to below a $1 at present. It was the pioneer in bringing email services to handheld mobiles, with its trademark QWERTY keyboard, BlackBerry became an instant darling of world leaders, corporate honchos, and the rich and famous alike, ten years later, it has surrendered and sold the hardware part of the business which was its claim to fame to be a solemnly software developer and distribution company which is staggering still in that environment.
Application of the Financial Ratio Analysis on BlackBerry
Horizontal analysis, or trend analysis, is a method where financial statements are compared to reveal financial performance over a specific period it is used to spot financial trends over a specific number of accounting periods. This is valuable for BlackBerry critical analysis because it allows us to assess past performance along with the company’s current financial position or growth whilst projecting future performance. From the BlackBerry statements (page 27), the 2020 horizontal revenue analysis is:
(1040-2160) (2160 x 100) = -51.8%
This means that the BlackBerry net revenue decreased by 51.8% from 2016 to 2020. Using the same method, the yearly trend of the horizontal revenue analysis for period shown in the financial statements from 2016 to 2020 are:
Year Horizontal Revenue analysis (%)
2016 2017 -39.3
2018 -56.8
2019 -58.1
2020 -51.8
Based on the revenue horizontal analysis alone, BlackBerry`s revenue has regressed from 2016 to 2020. However, with the horizontal there are some limitations to consider, analysis manipulation can be achieved by picking a specific period that can indicate the reporter’s favorable outcome as well as the aggregation of information in the financial statements may have changed over time, so that revenues, expenses, assets, or liabilities may shift between different accounts and, therefore, appear to cause variances when comparing account balances from one period to the next. In the case of BlackBerry, the period of 2018 is when they did business change from Hardware to software and such a shift in business is bound to be met by some challenges, resistance and long- term adjustments before a business is deemed profitable. Further to this, there is the vertical analysis which can be applied to show the relative sizes of the different accounts on the financial statement. The primary difference between vertical analysis and horizontal analysis is that vertical analysis is focused on the relationships between the numbers in a single reporting period say year 2016 of BlackBerry, or one moment in time whilst horizontal analysis looks at certain line items, ratios, or factors over several periods to determine the extent of changes and their trends.
BlackBerry`s Quick Ratio
This is one of the most frequently used types of financial ratios, giving a quick indicator of business liquidity. The quick ratio measures a company's capacity to pay its current liabilities without needing to sell its inventory or obtain additional financing. To calculate the quick ratio, current inventory is subtracted from current assets and then divide this by liabilities:
From page 67: 11961121-0 = 1.06

Based on the statements, BlackBerry has no inventory so the current assets will be divided by the current liabilities. With a quick ratio of above 1, BlackBerry is in a decent position to cover its current liabilities.
BlackBerry Debt to equity ratio
The debt-equity ratio is a measure of the relative contribution of the creditors and shareholders or owners in the capital employed in business. Simply stated, ratio of the total long-term debt and equity capital in the business is called the debt-equity ratio. This looks at whether a business is borrowing more than it can reasonably pay back using equity as a metric. To calculate debt to equity:
Total Liabilities / Shareholders Equity
1359/3888 = 0.35
In the case for BlackBerry, because the ratio value is below one, it indicates that the company holds less debt.
BlackBerry Working Capital Ratio
The working capital ratio, also known as the current ratio. Like the quick ratio, this looks at how well a company can pay its existing debts. However, it considers all current assets rather than simply liquid assets:
Current Assets / Current Liabilities
1196/1121 = 1.06
BlackBerry has a high working capital ratio, meaning it will be easier for the business to pay off debts using its current assets.
BlackBerry Price to earnings ratio
One of the top indicators for earnings potential is the price to earnings ratio, or P/E. This divides a company’s share price by its earnings per share.
In other words, it measures the amount an investor would pay for each dollar earned. This gives you a quick idea if a stock is under or overvalued. Because share prices vary by industry and market conditions, there isn’t a universal rule for what constitutes a “good” P/E. However, you can compare the company’s P/E to similar stock prices for comparison.
For BlackBerry: x/(0.32)
(Current Assets – Inventory) / Current Liabilities
Net profit margin ratio
often referred to simply as profit margin or the bottom line, is a ratio that investors use to compare the profitability of companies within the same sector. It's calculated by dividing a company's net income by its revenues. Instead of dissecting financial statements to compare how profitable companies are, an investor can use this ratio instead.
 

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