Sandell Arnolds Financial Statements - Essay Example

The users have diverse needs, which are met through the provision of financial statements. The key features in Sandall Arnold’s financial statements are the income statement, the statement of the financial position for two years, 2012 and 2013, and the independent auditor’s report (Gibson 2009, pp. 193)    Part two If the provision of the £ 30 million worth of claim is not included in Sandall Arnold’s financial statement, the auditor will issue a modified audit opinion ( type: the likelihood of a misstatement) for the reason that all other items are correctly stated but the provision. However, if the provision is made, the auditors will give an unmodified opinion showing that the company’s financial statements present “a true and fair view” of the financial position. The two corporate governance deficiencies identified are the failure of the board of directors to develop remuneration packages for other directors based on performance evaluation. Second, the board of directors disregarded a significant internal management process (performance evaluation). To improve decision-making, the management should observe the rules and regulations set out by the company’s founders. Second, the board of directors should exercise fairness and probity when making decisions (Bagshaw 2013, pp. 20-23)   Part three Based on the two-year income statement of Sandall Arnold’s company, the company’s revenue increased by 1.612% between 2010 and 2013. The gross profit increased by 96% between the two periods. The costs of sales decreased by 8.969% between the two periods. The profit before tax increased by 242.86% and the profit increased by 200% between the two years. The above movements are due to the revenue increase and a decrease in the costs of goods sold between the two periods. The movements have a positive influence on the financial position since they increase the company’s profitability (Besley & Brigham 2008, pp. 57-58).   Part four The part of the cash flow showing the company’s working capital management is the cash flow from operating activities part. The following are the working capital ratios relevant to this case: the current ratio, quick ratio, inventory day, and receivable days. The gearing ratios for 2012 and 2013 are 38.08% and 47.02% respectively. On the other hand, the interest coverage ratio for 2012 and 2013 are 0.13 and 1.83 respectively. Loosing the would reduce the company’s ability to meet the costs of debt, thus increasing the default risk (Peterson & Fabozzi 1999, pp. 75-77).   Read More