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Financial Reporting/Statements - Essay Example

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Financial statements are used to record financial activities of an organization, they usually represent the performance of a company over a particular period of time and these analysis are used by many potential users for their respective purposes. An organization’s financial…
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Financial Reporting/Statements
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Download file to see previous pages They use the financial statements with their own personal interests and then weigh the company’s performance accordingly.
It is difficult for a company to attract a new customer than to retain one. Many organizations tend to have policies that are at the convenience of customers. Usually organizations offer their large customers with certain credit facilities to attract more customers on terms which may seem feasible to the customers. Many discounts are offered to customers on bulk purchasing but all these issues put a question mark on the liquidity of an organization, i.e. the availability of liquid funds to pay off any debts as the fall due. To tackle these situation companies offer further cash discount on prompt payments or payment made quickly. New customers are often not given any credit as they their credit worthiness is not known, companies when giving out credit to customers (often new customers) get an analysis of those customers from organizations that keep a credit worthiness record of many people or organization; these companies are usually credit rating companies. After assessing all this, organizations decide the level of credit to be given to a particular customer and for how much time. Many customers are given prompt credit as their past record with the company is incredibly good.
Many different techniques are used by companies to evaluate the decision of giving their goods or services on credit, Ratio Analysis is one such technique which is used via the use of the financial statement, figures are calculated and compared with prior years or Industry trends to evaluate whether the credit given out is appropriate or higher with respect to the Industry as a whole or when compared with previous periods. Giving out credit affects the liquidity of a company. Efficiency ratios, such as the Debtors’ payment period are calculated, this ratio gives a rough measure of the average length of time it ...Download file to see next pagesRead More
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