BAO5734 : Accounting and Financial Management - Accounting and Finance Assignment Help

Assignment Task:

Task:

Week 2 Learning Objectives

? calculate ratio analysis in the areas of profitability, efficiency, and liquidity using the General-Purpose Financial Reports (GPFR)
? analyse the profitability of the business by using ratios, including ROI and profit margin
? analyse the operational effectiveness of the business by using ratios such as debtors’ days and inventory turnover
? analyse the firm’s ability to repay its debts using liquidity ratios such as current ratio and quick ratio
? analyse the motivation for companies to merge and evaluate the performance after it has merged.

“You have to understand accounting and you have to understand the nuances of accounting. It’s the language of business and it’s an imperfect language, but unless you are willing to put in the effort to learn accounting – how to read and interpret financial statements – you really shouldn’t select stocks yourself” – Warren Buffett

5 Presentation Name
Why is it important to read and interpret financial statements correctly?

Working Capital
= Current Assets – Current Liabilities

Explanation
Generally, the larger the amount of working capital, the more likely a company will be able to pay its suppliers, lenders, employees, etc. when the amounts are due. It also means less stress when an unexpected problem arises.

The amount of working capital that a company needs will vary by industry (and could vary by company within the same industry). Here are some factors that determine the amount needed:
• Type of business (manufacturer, retailer, service provider, etc.)
• Size of the business
• Amount of sales on credit terms such as net 30 days
• Competition
• Composition of the current assets (cash is far different from inventory)
• Dates when the current liabilities must be paid (next week or 10 months from now)
• Age/condition of the assets used in the business (older equipment may require more repairs)
• Financing arrangements (such as an approved and unused line of credit)
• Emergencies that arise unexpectedly

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