Accounting Theory And Analysis : Evaluation Of Financial Analysis

Introduction: It involves evaluation of financial analysis based on the relevant information generated by financial assessments

The Accounting analysis or financial analysis is implemented to make an established, viable and accurate evaluation of the revenue, income, and expenditures of a company to make critical business decisions (Lucarelli and Gianni 2011). It involves evaluation of financial analysis based on the relevant information generated by financial assessments based on operational, functional and market performance of the company. The analysis and evaluation of financial statements, ratio and cost of the organizational behavior provide knowledge on the business activities used by business management to make critical business decisions (Daske et al. 2013).  The essay provides an overall information on the use of IFRS (international financial reporting standards) setting a proper structuring and setting to make more convenient financial analysis for better information gathering on the business activities and decision making on the performance of an organization in the marketplace.

Financial Analysis

IFRS and Potential external Shareholders

The international financial reporting standards or IFRS is been organized to create a common financial language that can be implemented globally in the corporate bodies. The introduction of IFRS in the international is based on making a common understanding on the accounting and financial information of the business that can be used by the external shareholders of the company (Christian et al. 2013).

The IFRS principles, regulations and rules are been implemented in different countries in different prospect. In relation to Australia, the implication of IFRS is been engaged based on Australian Accounting Standard Board (AASB). It has produced the guidelines, settings and structured measurement of financial statements been mentioned the IFRS that is used by the Australia business organization (Gaffikin 2008). The country is been implemented the updated IFRS principles and rules been introduces in the AASB sections are approved and maintained form the year of 2005. The countries such as Europe, Middle Eastern companies along with Australia are said to be major countries implemented the rules and regulations of IFRS principles to make the accounting and financial analysis and evaluation much more effective and affecting (Zimmerman et al. 2011.  The implication of AASB has also introduced more options that are not been stated in the IFRS standardizations to increase the financial information and its impact in analysis and interpretation of the financial health of Australian companies (Porcelli et al. 2009).

According to Daske et al. (2008), the shareholders are the individual engages funds in the company shares in relation to enhance the business activities of the company returns to gain a percent in the revenue generated by the company in the marketplace. There are different external shareholders uses the financial statement information for making the investment decision in the shares of the company. Gaffikin (2008) mentioned the analysis and evaluation of the financial statement are necessary to be performed in a common manner that can be understandable for the shareholders to interpret the financial health and performance of the company. Customers, suppliers, governmental bodies, financial sanitation are some of the major external shareholders use the financial statement to evaluate and assess their financial health of the company (Lucarelli and Gianni 2011).

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Financial Information needs and importance of decision making

There are different financial information that is been used by management of different companies to make critical decision making. As per IFRS, the objectives of financial statement it is been structured in terms of providing proper and detailed information on the financial health of the company in the marketplace. It engages information based on the financial positioning, operational performance, cash engagement and functional activities of the business entities operating in the country (Cesarini et al. 2010).   The users of the financial statements analyze and interpret to make economical decisions making by the internal shareholders such as owners, managers, directors of the company. In the other hand, the financial information being used by the external shareholders in relation to making a decision based on the investment to ma\de in the company by different customers, suppliers, governmental bodies and financial institutions. As per Merritt et al. (2009), there are different types of financial statements that is been engaged by the business Organizations used by the shareholders to assess specific and important information of the financial performance of the company. The balance sheet is been prepared for evaluation of the assets owned and liabilities creditable in the organization income statement provides information on the income generated by the company in relation to the expenditures made in the financial year and cash flow statement that provides evaluation of cash in and cash out in the operational, financial and investment activities of the business (Zimmerman et al. 2011).

IFRS states that there are relevant criteria’s that provides better information for the users of the financial statements are as following:

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Financial Positioning

The IFRS stated that the financial positioning is one of the major criteria that is been used for identification of better info ration for the shareholders of the company. It is stated as the easiest way of increasing information in the financial health of the company. As per the evaluation, financial positions is been gathered by assessment of the assets owned by the company that states the availability of the elements used in the production of the products (Porcelli et al. 2009).

For example- The assets valuation of one of the biggest aviation company of Australia, Virgin Australia Airlines current assets in valued $4679 million in 2014 that is been increased form the year of $4547.1 million in  2013. In the other hand liabilities of the company in 2014 estimated $ 36313.2 million and in 2013 it has been valued 3445.8 that interprets that the creditability of company is less in comparison to its liabilities and certainly increasing in a slow rate that can be easily covered by the company (Virgin Australia 2014).

It states that the company business activities are increased thus the shareholders will certainly make positive investment decision \on the financial condition of the company

Future planning

There are different companies release different reports that engage statements of CEO, directors and chairmen’s of the company stating the current performance and future planning of the company. It provides information on the future operational, functional and business activities’ that generate information on the expansion of the business (Armstrong et al. 2010). As per IFRS, the shareholders of the company uses the information to increase their investment to support the company future development that possibly makes high rate in investment returns by increasing its revenue generations. Shareholders of the company assess the creditability of company, as more creditability denotes weak positioning and less creditability determines liquidity in the marketplace (Lucarelli and Gianni 2011). For example- The Bank of Queensland is one of the major banks of Australia includes chairmen’s statement to the shareholder’s states in the current year of 2014 BOQ has cash earnings increased by 17%. It is stated that the bank’s performance in increasing estimates a bright future development and improvement of the company in the next 5 years. In relation to increasing the future growth of the company, the share performance in the market has been increased by 14% ( 2014).

Financial Profitability

The critical key factor that is been used by the financial statement user of companies for making critical financial decisions is revenue generation possibilities and the ability of the company. The shareholders of the company analysis and interrelates the revenue gyration of organization to the evaluator and analyze the pay structure and return on investment rates to be introduced by a company for payback of investment made by shareholders (Porcelli et al. 2009). The financial information is important as shareholders make a decision on the performance of the company and ability to pay back all the funds invested in the company at end of financial year.

For example- In the year of 2013, the Steel Company of Australia Blue Scope, the revenue generation has been estimated $8404.8 million whereas in 2012 it has been estimated $9774.9 million. It is analyzed that the revenue generation of the company has been declined that that decrease the confidence; the level of the shareholders’ in making the investment in the company ( 2014).


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Conclusion On Evaluation Of Financial Analysis

According to IFRS standards, the implication of the guidance and measurement procedures in the company been executed provides a proper presentation of financial positioning, accurate analysis, and evaluation of the accounting and creates necessary information based on the basic elements of the accounting that are assets. The major factors such as financial positioning, future planning, and profitability are basic factors to provide financial statement information for the shareholders. The particular study states that the shareholders use basic information of financial statements under the guidance, structuring and measurable legislations of IFRS to increase information on the financial health and performance of the company. This provides a relevant source to make investment decisions based on performance, productivity, and growth prospect of the company in the marketplace of Australia.