INTERPRETING FINANCIAL STATEMENTS - Essay Example

INTERPRETING FINANCIAL MENTS Table of Contents Table of Contents 2 BYP3-4 3 BYP3-9 4 Works Cited 5 BYP3-4 (a) The advantages of Chieftain of having no long-term debt in its capital structure are as follows:One of the advantages of having no long-term debt is that the investors of Chieftain would have a perception regarding the company as of having a good financial health. Too much of long-term debt can prove to be worrisome for the potential investors of the company and might have an adverse impact on the share prices of the company.

With no long-term debt Chieftain can have the advantage of having no fixed obligations in the form of paying off its debt during bad times and thus increases the flexibility of the company.The company management can focus on its operating activities more rather than being concerned about the regular repayments of long-term debt. Hence, it can add to the efficiency of the company management to run its business successfully.However, there is tax advantages associated with the interest payments of long-term debt and the cost of debt is also lower compared to equity.(b) Chieftain has a large volume of cash balance which can be helpful for the company to pay off its current obligations easily.

It improves the liquidity position of the company. However, it can be disadvantageous for the company too because idle cash would not earn any return for the company and would limit the company’s growth in future.(c) Chieftain has $4.6 million as accounts payable instead of having so much cash balance. It is so because the company might be finding difficulties to generate sufficient cash from its operations or might have higher inventory levels.BYP3-9(a) According to Kranhold (2007), the employees of General Electric (GE) were engaged in the practice of using improper accounting methods to record the revenues generated by the company during the years 2000 to 2003.(b) The possible reasons behind these activities being conducted by the employees of GE can be some personal incentives for the managers if they are able to generate higher revenues for the company.

Another possibility can be that the employees might have been instructed by the top level managers of the company to conduct such activities so that it can mislead its investors by showing a better financial position of the organization.(c) It has been reported by GE that it had fired several employees who were involved in these fraudulent activities in order to regain its reputation in the market.(d) Restating the financial results mean reviewing the previously published financial statements of the company to make adjustments for any kinds of errors that might be present in the disclosed financial information or may be due to some changes in accounting policies made by the company.

GE did not restate its financial results in order to rectify its reported locomotive sales because the related changes were not that significant as compared to the total revenues generated by GE or the income generated by them. Restating the financial results would have resulted in only 0.2% change in its reported earnings. Works CitedKranhold, Kathryn. “GEs Accounting Draws Fresh Focus On News of Improper Sales Bookings.” The Wall Street Journal, 28 July 2007. Web. 14 Sep. 2012.