Business Accounting & Finance Value Measurement Assessment Answer

Question 1

Assets, customers, social value, personnel, and suppliers determine a company's worth. The statement of profit and loss shows a company's net income after subtracting operating expenditures. Financial statements show profit or loss. Profits have historically measured company ideals and performance. Most CEOs and CFOs say earnings are the strongest measure of a company's value, but in the current economic context, profits don't tell the entire picture. Managers should assess profit-and-loss accounts for cash, growth, assets, people, and profit. Earnings shouldn't be the only measure of a company's growth. A company's success depends on cash flow. Cash flow, not accounting for profit, determines a company's capacity to pay bills and meet commitments (Saeed et al., 2022). A growing accounts receivable may hide the reality that the business is having problems paying its financial obligations, even though its profit and loss statement may indicate otherwise. The International Accounting Standards (IAS1) explain this best by requiring all financial statements to be prepared using accrual accounting, except for cash flow information. Accrual accounting allows firms to calculate earnings before receiving payment for their goods and services. One IAS, Instead, demands prompt cost reporting. Thus, net earnings aren't misinterpreted. GAAPs allow accrual accounting. That's when a corporation records purchases and sales regardless of payment (Das et al., 2022). Accrual analysis doesn't necessarily show a company's profitability and worth. This method does not need prepayment, unlike the cash basis, which requires enterprises to record transactions when payments are made. The cash basis, which tracks financial transactions, better reflects an organization's success. Thus, profit margins alone cannot assess a company's value. For valuation, the balance sheet lists the company's assets and liabilities. Another factor in corporate valuation is growth potential. If the following are considered, a startup may be worth investing in despite its lack of profitability: addressing rivals by providing exceptional and high-quality products that satisfy customers' needs; providing high standards of customer service and improving customer satisfaction; upholding corporate social responsibility by using safe production methods and releasing only high-quality products.

Question 2

Financial statements, ratio analysis, and an explanation of American Medical Centre numbers are provided below.

The American Medical Centre now has a ratio of 2.35, according to my research. If a corporation has more assets than debts, it may pay off its obligations within a year. If a company's current liabilities exceed its current assets by more than 1 to 1, that's cause for concern. 1.45 is the value of the Quick Ratio (Hasanaj and Kuqi, 2019). It shows that for every $1 in current Liabilities, the company has $1.45 in liquid assets. While greater quick ratios are generally favourable, abnormally high ones might suggest that a firm is sitting on a large amount of capital that it isn't putting to good use in growing the business. Centre has commitments of $0.86 for every $1 in equity, indicating a debt-to-equity ratio of 0.86. Indicative of a healthy relationship between sales and stock, the company's Inventory Turnover is 4.2. It indicates that the business is not low on inventory and has a manageable number of assets taking up space.

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The company's success in turning its assets into cash flows is demonstrated by its high Return on Assets ratio of 86%. It's important to keep in mind that these financial statistics will change from business to business (Hasanaj and Kuqi, 2019). So, compare the company's financial ratios to those of similar businesses in the same industry.

Question 3

a)

Although numerical and mathematical calculations can serve as a useful indicators or snapshots of complex processes, they cannot provide the full picture. This is because, by definition, they are reductionist and hence only account for a subset of the relevant factors. Oversimplification and a failure to grasp underlying complexity are possible outcomes. Furthermore, numbers and calculations are not always guaranteed to be exact or reliable because they are subject to interpretation.

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