Thursday, December 12, 2019
Analytical Review of Fortescue Metals Group- myassignmenthelp
Question: Discuss about theAnalytical Review of Fortescue Metals Group Limited. Answer: Introduction Financial statements provide two major things to the readers or its users. One of the major things is the statement of the profit and loss which describes the financial performance that the company has gained over the period and second is statement of the affairs which describes the financial position of the company as at the end of the period. The company that has been selected for the purpose of the conduct of the analysis is the Fortescue Metals Groups Limited. The annual report for the year ending 30th of June 2017 and 30th of June 2016 has been considered. The report has started with the introduction and follows with the start of the analytical review. Analytical review has been conducted with the ratio analysis. Ratio analysis includes the profit and loss ratios as well as the balance sheet ratios. After conducting the analytical review and detailing the results, the working capital management policies have been detailed of the company. It has been discussed with reference to the current ratio of the company and has been detailed whether it is as per the needs of the company or not. With these considerations, the report has been ended with the appropriate conclusion and recommendation. Analytical Results Net Profit has been at an increasing rate for the last three years from 3.70, 13.89 and 24.78 in the years ending 2015, 2016 and 2017 financial years. S. No. Particulars 2017 2015 2016 1 Net Profit 2,721,008,840.00 1,326,420,684.00 411,458,333.00 2 Revenue 10,999,739,989.00 9,806,086,722.00 11,264,322,916.00 3 Net Profit ratio 24.78 13.89 3.70 The sudden increase over the three years can also be treated as dangerous situations. It is because many of the companies have been collapse due to sudden increase in the business of the company. For instance Lehman Brothers, HIH Insurance Company and One Tel Company have all collapsed. The major reason of the collapse was the accounting errors and willfully manipulating with the figures of the financial statements of the company and generating the higher revenue of the company so as to provide the maximum benefits to the shareholders of the company. In the given case also, the company has generated very high profits, although no qualification has been reported in the financial statements, but there may be the chances that the company might have manipulated with the revenue and profit figures (Horngren, 2012). From the point of balance sheet, the retained earnings have the very significance in the analytical review. S. No. Particulars 2017 2015 2016 1 Retained Earning 10,910,036,401.00 9,504,443,845.00 8,052,083,333.00 The above figure shows that the retained earnings have been increasing with the increase in the profits of the company. It means that the company has been ploughing the profits back into the company and thus ensuring the shareholders that they will have returns in the future as they have expected. But there may be the chances that the company might have over reported the profits so as to gain the attention of the investors and will exit from the market once it gets filled in the same manner as other companies have done (Kaviyani, 2011; Zimmerman, 2014). Thus, from the above ratios, it is exhibited that the company is in better position for the few years to come. Working Capital Management Working capital management deals with the current assets and current liabilities of the company. The company is having the best working capital management policies. It is because the company has been receiving the cash from the customers at the high speed and accordingly is making the payment and after those payments, the company has been able to generate the positive cash flows from operating activities due to which there has been the net increase in the cash and cash equivalents (Premnath, 2012). Thus, working capital management policy of the company is better and good which in turn will help the company in maintaining the high liquidity in future. S. No. Particulars 2017 2015 2016 1 Current Assets 3,386,635,465.00 3,262,860,220.00 4,595,052,083.00 2 Current Liabilities 2,862,714,508.00 2,200,377,053.00 2,197,916,666.00 3 Current Ratio 1.18 1.48 2.09 Conclusion and Recommendation From the above report it is concluded that although the company is at good pace with the growth but there may be the chances of manipulation which should be checked with the regular reviews in order to avoid hurdles in future. It is recommended to have the framework within which the manipulation shall be avoided and sound internal control system shall be developed. References Horngren, C. T, (2012),Introduction to Management Accounting, Chapters 1-17. Prentice Hall. Kaviyani M, (2011), A Theory to Analysis of Annual Report , Research Journal of Finance and Accounting, Vol 10, No. 15, pg 192-202 Premnath S, (2012), Analysis of the Financial Statements, International Journal of Accounting and Finance, Vol20, Issue 17, pp 24-42. Zimmerman, (2015), Accounting for ManagersIssues in Accounting Education,35, 77-99.