Financial Ratio Analsis in Managerial Accounting

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TABLE OF CONTENTS I

EXECUTIVE SUMMARYII

I.INTRODUCTION 1

i.Background:
ii.Framework:
iii.Financial Statements:
iv.Analyzing Company Accounts
v.Ratio Analysis

II.MANAGEMENT ACCOUNTING 3

i.The Objectives of Management Accounting:
ii.Scope of Management Accounting:
iii.Functions of Management Accounting:
iv.Advantages of Management Accounting:
v.Limitations of Management Accounting:
vi.Tools and Techniques:

III.INTRODUCTION TO FINANCIAL RATIOS 8

i.Financial Ratio Analysis:
ii.Users of Accounting Information:

IV.DESCRIPTION AND DETAIL OF THE COMPANY – SRI LANKA TELECOM14

V.ANALYZING THE VARIOUS KINDS OF RATIOS WITH THE COMPANY FINANCIAL STATEMENTS 15

VI.ANNEXTURE21

(FINANCIAL STATEMENTS OF SRI LANKA TELECOM – YEARS 2003 & 2004)

EXECUTIVE SUMMARY
This scrutinized study is written, based on the annotations gathered from the Financial Statements taken from the Annual Reports of the company – Sri Lanka Telecom of the years 2003 & 2004. The introduction portrays the background and framework of Annual Reports, Financial Statements, Company Accounts and Ratio Analysis. Beginning with a description about Managerial Accounting, this paper also examines features concerning Financial Ratios and how and why it is significant in the evaluation of a company’s Financial Analysis.

CHAPTER - I
INTROUCTION
Background:
In this analytical report we will look at the financial interface of a company with the outside world, which is its reporting of financial results.

These are typically referred to as ‘annual reports’, with listed companies filing interim half – year reports as well. Companies’ ‘annual reports’ are prepared to the end of that company’s financial year, which is not necessarily either the ‘calendar’ year or the April to March ‘fiscal’ year.

To understand the context of this reporting we must explore some of the background and history, since it is easy today to take the concepts entirely for granted.

The term ‘company’ is now used to describe a company registered under the Companies Act. Today’s Companies Acts, revised and updated by Parliament, continue to refine the laws relating to companies.

Framework:
The contents of the annual reports follow a pre – set pattern that is similar for all companies. This is not a coincidence. The contents of the annual report are prescribed in some detail in the Companies Acts. In addition to the directors’ reports, which must include a fair review for the company’s activities throughout the year, detailed formats are provided for the financial information which must be supplied.

Financial Statements:
The above is broken down into three main statements – profit and loss account, balance sheets, cash flow statement.

Most large companies are now actually ‘groups of companies’ and the profit and loss account and cash flow statement will be for the group as a whole, while the balance sheet is provided for the consolidated group and for the holding company alone. Analyzing Company Accounts:

The contents of the results that are published annually and bi – annually by large companies as ‘annual reports’ / ‘interim reports’, give a good picture of the state of the company in isolated; but we might also want to compare the performance of the company with: - earlier years of the company’s performance to determine trends - other companies to ascertain comparative performance

Under these circumstances it is not very helpful to just know that, the sales of one company is greater than another, or that one is more profitable than the other. These could be the result of any number of factors such as the relative sizes of the companies, or the different industries in which they operate.

What is required is a...
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