Pace 215-Project B-Demition 1
Pace 215-Project B-Demition 1
Pace 215-Project B-Demition 1
PROJECT b
(Financial Information
Interpretation)
PACT 215
Submitted by:
Selyn M. Demition
BSITM (TTO) 4Y1 – 3B
Part 1
Organizations need accurate financial records. With this, financial information is necessary as it allows
owners, investors, and decision-makers to monitor the performance of the organization and as a basis for
future strategic and operational planning. Also, financial information allows organizations to properly
maintain their records on a timely basis.
Balance sheets are vital as it serve as the basic financial statements that every company must produce.
This includes items that are not part of the profit and loss report. In short, balance sheets display the
organization’s assets and liabilities as well as the owner’s equity. They are not only critical indicators of
business performance but they are also legally required as it provides an overview of the industry's
financial sustainability.
Invoices
A record of a transaction, including a receipt from the company, was shown on the invoices. This invoice
served as the critical element in the financial operation of the company which helped supervise the
security processes and audits. So, if the organization found a discrepancy in a source document, they will
know to take action. These discrepancies might include unauthorized variation on price, goods charged
that were not delivered, etc.
Financial Competitive Analysis
In order to evaluate the business's performance, indicators should be equated to those of competitors.
Competitors might discover ways to cut costs and increase profits that the company has not yet
considered. In connection to this, an organization has to know that monitoring financial performance is
critical to ensuring that strategic decisions are made on time and that the business's growth strategy is
followed. Because accurate financial reporting and financial analysis contribute significantly to this
monitoring activity, the company should give them the attention they deserve.
Analysis of Overheads
An organization must know that simply preparing financial statements is insufficient. More than that, the
company should look for subtle messages in the data that emphasize potential vulnerabilities. A company
should check the overhead costs, such as rent, payroll, marketing expenses, and so on.
Fund and Cash Flow Statements
Company's financial and cash flow statements are critical reports for a business because they show how
much liquid cash is coming in. It is important to recognize that many receivables might be marked as
revenues on the balance sheet, but in closer examination might reveal that they are still a long way from
being translated into hard currency, and a company can only function with real earnings, not fictitious
ones.
Profit and loss statements
An aged debtor's trial balance should be prepared every month because it can help the company keep
track of all customers who owe them money. They can keep track of suspicious accounts and diligently
pursue them to recover their funds.
Analysis of Marketing Expenses
Through this financial information, the organization can use this as a guide to answer how much money is
spent on advertising? Do the profits outweigh the costs, or are they simply an extra cost for the company?
How much money is spent on alternative marketing methods, and how many leads result in profitable
sales? The following questions must be answered in order to assess the company's financial success.
Analysis of HR
Human resource-related activities should also be monitored. How often do employees switch jobs? If the
company spends a lot of money on new hires, recruitment agency fees, and employee separation
procedures, the staff turnover ratio may be too high. And so, it might be necessary to make some
adjustments as the cost of training new employees to work effectively can occasionally put a strain on the
business.
Trial balance
The company’s trial balance displays the closing balances for the accounts at a specific point in time.
With this, in order to ensure that strategic choices are made on time and that the business's growth
strategy is followed, monitoring financial performance is crucial. The business should provide accurate
financial reporting and financial analysis the attention they deserve because they contribute significantly
to this monitoring activity.
Part 2
Provide financial information using correct financial terminology on six different operational or
departmental financial activities listed below:
1. Average customers spend
The sum of all non-recurring payment transactions divided by the total number of clients. The average
transaction value for each day is displayed in the average spend report. To see when an organization is
working at its most productive level is useful. An average transaction value may decrease due to a certain
promotion or special and the average expenditure report will show this by how much. The average
customer expenditure can be raised either by raising prices or by upselling and cross-selling.Its statistical
value stems from its ability to generate product recommendations based on client purchases and to
compare current and past customer purchases which may be referred to as "after-selling."
The financial information in this report is recorded in daily, weekly and monthly transactions. It is used by
the company to identify their position at any point in time. Their position can change constantly
depending on purchases, payments, wages. With these, they can assess new profit-making opportunities
or invest in additional resources for expansion of services. Through this, the company will be able to
predict and monitor performance.
Weekly and monthly reports are the two options for daily status updates. Weekly and monthly reports can
be completed more quickly because they are not required on a daily basis. These reports, on the other
hand, must include precise and in-depth details because they are critical report output components.
3. Departmental expenditure on:
a. Labour
Basically, labor costs are essentially the costs associated with labor in manufacturing. On an income
statement, labor expenses are any labor costs directly related to the manufacturing process, such as raw
material procurement and storage, processing, and assembly. Because wages fluctuate with changes in
output volumes, labor is regarded as an important variable cost. Business owners and managers must
closely monitor direct labor costs to ensure that they remain competitive.
b. Stock purchased
A stock purchase occurs when a buyer directly purchases shares of a target company from shareholders
who are selling them. A stock sale gives the buyer ownership of the company's assets as well as its
liabilities, including any potential liabilities resulting from the company's previous behavior. The buyer is
simply filling in for the departing owner, and business continues as usual. A stock purchase defines the
initial costs incurred by a company in the manufacture of the products it sells. This amount includes the
cost of the materials and labor used directly to make the product. Indirect costs, such as those associated
with the sales force and distribution, are excluded.
c. Wastage
As discussed in the previous information in this report, maintenance and repair costs are charged to
operating expenses as incurred. Maintenance and repair costs also include engine overhaul costs covered
by cost-per-hour agreements, a majority of which are expensed on the basis of hours flown. Wastage,
whether it's wasting in terms of items lost, wastage in terms of work time, or wastage in terms of writing
off a bad debt, is frequently concealed until the organization puts a monetary value on it. Also known as
wasted expenditure, wastage is the expenses incurred as a result of the contract being executed.
4. Departmental income:
Cover is the process of reducing investment risk by restricting a liability or obligation. The most common
approach an investor reduces risk is to make a compensating deal that negates the possible risk of a
previous one. In addition, the financial ratios determine a company's margin of safety when servicing debt
and making profits.
On the other hand, the derived benefit a person receives prior to deductions and taxes are referred to as
gross income. Net income is the amount that is still present after taxes have been paid. Net income is what
is displayed on a pay stub after taxes and deductions. Unless a person is tax exempt and has no
deductions, net income is always less than gross income.
b. Commission earnings
Commission earnings are a substantial part of a company's cost of goods sold, so they are typically
considered a component of operating activities. On a contribution margin income statement, sales
commissions are seen together with variable expenses. As an outcome, commissions are effectively
incorporated into the price of goods sold. Sales commission is reported as revenue on the income
statement. If the commission is related to the company's main functions, it is typically classified as
operating revenue.
The occupancy is the proportion of overall gross leasable area that a tenant is required to pay rent under
the terms of its lease contract, despite the actual use or occupation of the area being leased by that tenant,
with the exception of tenants in their removal period.
Gross income is applied to determine net income, total income, and adapted adjusted gross income.
Individual gross income serves as an individual's total earnings before any taxes or other write offs. This
involves revenue from all source materials, not just employment, and is not limited to cash income; it also
includes property or services received. A company's gross income is calculated on its income statement as
total revenue less cost of goods sold (COGS).
d. Sales
The sales are determined as the income generated through the goods and services provided to the
customers. It represents the revenue that would be received in an orderly transaction between the
customers based on the highest and best use of the services. When referring to the terms sales and
revenue, these are frequently interchanged. It's important to remember that revenue does not constantly
equal money. One portion of sales revenue could be compensated in cash, while the remainder may be
purchased on credit through methods such as accounts receivable. On the income statement, sales revenue
can be represented by either the gross revenue sum or the net revenue amount.
5. Outstanding accounts:
Accounts Receivable and Accounts Payable. The fair values of accounts receivable and accounts
payable in this financial report is approximated carrying value due to the short-term maturity.
a. Payable- The accounts payable is indicated as the amounts owed for goods or services received
from a supplier, Suppliers are creditors as indicated in the financial statements. This includes the
materials from suppliers, etc. The accounts payable is produced when money is owed by the
company for services rendered or products provided that has not yet been paid for by the firm. In
this report, purchases from suppliers on credit and installment payment that is due after goods or
services have been received are included.
b. Receivable- The company’s accounts receivable describes goods or services supplied by the
organization to another party based on the agreements being settled. Payment in return is
expected. The other parties are debtors to the organization. In financing transactions, the company
typically agrees to supply the other party for any reduced returns with respect due to any change
in capital requirements and, in the case of loans in which the interest rate is based on the offered
rate.
A quotation is an official report provided by a seller to a buyer in order to make an offer to supply them
goods and services at the given price. The company will generate a proposal based on the information
provided by the potential customer about the variables that affect the value of the item. Quotations are
primarily used to inform potential buyers of the cost of goods or services before they make a purchase.
Both strategies serve the same purpose before the order is confirmed, to provide the consumer with a
detailed explanation of the product or service being provided.
7. Sales performance
The sales performance evaluates segment performance based on several factors, of which the primary
financial measure is operating income (loss). The quality in which the staff functions over a specified
timeframe is sales performance. Implementing sales performance management is among the most
common methods to track and supervise sales work from the beginning and throughout the operations.
Common measures that can be evaluated depending on the industry and business objectives include sales
revenue, user acquisition, and retention rate. This aims to improve productivity and quality by automating
and combining back-office operational sales activities.
8. Stock levels
In relation to the stocks of an organization, stock levels are determined by the company to lower the
expenses while guaranteeing to still fulfill consumer demand and that there is sufficient material for
manufacturing. Supplies, consumable parts, and inventories linked to stocks are kept on hand by the
company at an average cost of capital and are expensed as needed. Quality inspection is required to keep
stock levels as low as possible while still making items available as needed. In order to successfully
manage an organization's inventory and operate a retail location, a retailer must select different stock
levels that allow for over and under-stocking. These levels help the company meet and exceed customer
expectations. It also allows for the avoidance of irrational inventory investments.
As stated in the financial information, variance from budget is used by the company to enhance their
operating activities. Through this, the company will be able to examine the revenue in order to determine
their performance and position in the industry. Additionally, it provides a reliable year-long forecast. In
this report, a comparison with the previous year can be seen because by comparing the actual income and
costs to the amount which were forecasted, useful information about the organization’s performance over
time can be obtained. The budget variance is positive when actual revenue surpasses or actual expenditure
falls short of the budget. Moreover, budget variation refers to situations in which actual expenses are
either more or less than presumed or standard costs. A negative budget variance indicates a budget deficit,
which can occur when revenues are lower than projected or costs are higher than expected. Analysis of
budget variances aids in revenue growth. Any variance is analyzed by the company to determine why they
occurred and, to take plan and action to determine strategies to deal with them.