Accounting for Managers Information on Corporate Values

Question: Discuss about the Accounting for Managers for Information on Corporate Values. Answer: 1: A. Calculating the ratios of Nimbin Pty Ltd for 2016: Particulars Nimbin 2016 Industrial Benchmark 2016 Return on Total Assets 15.05% 22% Return on Common Equity 59.89% 20% Profit Margin 7.93% 4% Earnings Per Share 0.599 0.45 Price Earnings Ratio 20 12 Dividend Yield 3.13% 5% Dividend Payout Ratio 63.09% 70% Current Ratio 2.21 2.5 Quick Ratio 0.99 1.3 Receivables Turnover 14.1 13 Inventory Turnover 5.04 6.00 Debt Ratio 52.51% 40% Times Interest Earned Ratio 3.02 6 Assets Turnover 1.90 1.8 Table 1: Showing the overall ratio of Nimbin Pty Ltd for 2016 (Source: As created by the author) B. Commenting on the Profitability, Liquidity and use of financial gearing ratios conducted by the company: Figure 1: Showing the profitability ratio of Nimbin Pty Ltd for 2016 (Source: As created by the author) Figure 2: Showing the liquidity ratio of Nimbin Pty Ltd for 2016 (Source: As created by the author) Figure 3: Showing the financial gearing ratio of Nimbin Pty Ltd for 2016 (Source: As created by the author) With the help of figure 1, 2 and 3, the overall financial position of Nimbin Pty Ltd could be effectively compared with the industry standard. In addition, the overall profitability ratio of the company mainly indicates that only return on total assets of the company is not adequate compared to industry standard. However, return on common equity and profit margin of the company is adequately higher than the industry standard depicting the effective management conducted by the company (Enqvist et al. 2014). In addition, Nimbin has low current and quick ratio as compared to industry standard, which might be due to low asset accumulation conducted by the company. In addition, in term of interest earned the company is not adequate as compared to the industry standard. Owolabi and Obida (2012) stated that investors are able to determine ability of the company by evaluating its liability ratio and analyse its overall current asset deficit. In addition, the debt ratio of Nimbin Pty Ltd is higher than industrial benchmark, indicating that the company is prone to bankruptcy if its profits declined. Khidmat and Rehman (2014) stated that investors by evaluating the companys debt ratio are able to obtain information, which might help in reducing their risk from investment. 2: a) Explaining the impact of hotel assets on its balance sheet: After the in-depth analysis of the scenario, it could be concluded that the chef is indeed than asset of the restaurant, but it could not be listed in the balance sheet. Moreover, the chef being a person is not owned by the restaurant and as per the rules of the accounting, it could not be listed in the balance sheet. However, in the balance sheet only the brand value of the restaurant could be noted in the good will section. As suggested by Jimenez and Ongena (2012), balance sheet mainly comprises of items, which could be valued in term of money. On the other hand, Benes et al. (2015) criticises that companies to portray wrong financial statement uses accounting loopholes such as good will valuation. b) Evaluating the impact of accounting information system that helps managers to make adequate economic coercions: Manager of human resource: In the time of economic crisis human resource managers mainly uses the accounting information to evaluate the overall expenditure of the company and effectively sack employees to maintain a profitable position. In addition, accounting measures mainly help the human resource manager to depict the adequate salary to new recruit, which might help in maintaining both profitability and productivity of the company. Demski (2013) argued that inflated balance sheet mainly reduces the efficiency of the decision-making system, which might be used by managers of the company. Factory manager: The manager of a factor mainly uses the accounting information to depict the expenditure, which might be conducted to maintain productivity. In addition, the accounting information mainly helps in depicting the overall cost of production for each unit that is being produced in the factory. With the help of this adequate information, the factory manager is able to maintain the required working capital to support productivity level of the company. Ismail and King (2014) stated that effective evaluation of cost mainly helps the manager to contribute the required funds in its production facility. Furthermore, the factory manager with the help of accounting information is able to implement strategies like zero based budgeting system and activity based budgeting system to control cost and reduce its overall production expenditure. In this context, Abiodun (2012) argued that as zero based budgeting system increases the overall of the company and thus is not used by small and medium scale investors. Australian Football League manager: Australian Football league manager mainly uses the accounting information to evaluate the overall expenditure on players and income generated from played games. In addition, the manager also uses the accounting information to purchase new players, which might contribute to the team and fit within budget. Furthermore, the manager also uses the information to sell its over rated players make profits, which could be used in purchasing other players. Collier (2015) stated that accounting information mainly helps the manager to evaluate the overall expenses and income generated during the fiscal year. Second hand clothing charity manager: In addition, the second hand clothing charity manager mainly uses the accounting information to evaluate the number of second hand clothing collected from donors and distributed among volunteers. Moreover, manager with the help of accounting information is able to evaluate the overall number of clothing collected and sold to collect fund for the charity. Bhattacharya et al. (2013) stated that accounting information mainly helps in managers to analyses the overall efficiency of the company. In addition, the adequate adoption of accoutring system might help the manger depict the number overall increase and decrease in collection of second hand clothing during the fiscal year. c) Depicting the impact of transactions conducted on financial position, performance and cash flow statement of the company: (Refer to appendix) Equipment purchased for cash: After the purchase, an increase in fixed assets and decrease in current assets could be seen in the financial position statement. Moreover, a decrease in statement of cash flow could be seen after the purchase transaction. Receiving payments within 40 days after providing services to the client: Furthermore, in the statement of financial position, a decrease in current assets and liabilities could be seen. However, an increase in income in the statement of financial performance could be seen after the commencement of the transaction. Paying liabilities: Moreover, a decrease in statement of cash flow could be seen after payment of the liability. Furthermore, in the statement of financial position, both current assets and liabilities will be decreased after the payment of the liability. Owner investing additional cash into the business: After the transaction, an increase in current assets and equity in the financial position section could be evaluated. Moreover, an increase in cash flow statement could also be seen after receiving cash. Collecting cash in account receivable: This transaction will only be recorded in cash flow statement, which in turn increases the overall cash flow of the company. In addition, an increase in cash might eventually help the company to maintain high liquidity. Paying wages to employees: This transaction affects financial position, performance and cash flow statement of the company. In addition, in the financial position section a decrease in current assets could be seen. Moreover, in financial performance an increase in expenses could also be seen. Furthermore, an increase in cash flow statement could be seen after the transaction. Paying within 30 days the received electricity bill in mail: In addition, in the financial position section an increase in current liabilities could be seen. Moreover, in financial performance an increase in expenses could also be seen after the electricity bill is been paid. Selling a piece of equipment for cash: Moreover, after the sales in an increase in current assets and decrease in fixed assets could be seen in the financial position statement of the company. In addition, in the cash flow statement an increase in cash could be seen after the commencement of the transaction. Owner for private use withdrawing: The transaction will have a negative effect on financial position and cash flow statement of the company. In addition, in financial position a decrease in current assets and equity could be seen. Moreover, a decrease in cash flow statement could be seen after commencement of the transaction. On long-term basis borrowing money from a bank: This transaction increases financial position and cash flow statement of the company. In addition, in the financial position section an increase in current assets and non-current liabilities could be seen. Furthermore, an increase in cash flow statement could be seen after the transaction. Reference: Abiodun, B.Y., 2012. Significance of accounting information on corporate values of Firms in Nigeria.Research Journal in Organizational Psychology Educational Studies 1 (2),1(2), pp.105-113. 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