please read carefully and provide a complete answer Thank yo

please read carefully and provide a complete answer. Thank you.
Choose at least two concepts in financial reporting (Intermediate Accounting: Reporting and Analysis) you have learned and explain how you may use them in your present or future accounting position. Make sure you provide details to include how each concept will help you support the financial goals of the company you currently work for or will work for in the future. 

Solution

I will be explaining the concept of Reading of the financial statements - Financial ratios from intermediate accounting. I will explain 5 important ratios and its usage in understanding financial statements.

These 5 concepts are very practical and used in most of the companies depending on its requirements.

Being an accountant everyone considers you to be expert at reading the financials of companies and financial ratios are tools to do the same.

There are many users of financial statements who want to know about the business performance or position. Following are some of the major users:

Following table will help you understand all the financial ratios and their usage:

Financial Ratio

Major users

Purpose

Liquidity ratio

Supplier, Lenders of the company

To understand the ability of the business to settle its short-term obligations

Customer of the company

To seek assurance that the company can survive in near future and thus would continue to supply services to the customer

Profitability ratio

All the users

Users ,mainly Investors, want to know profitability of the company to understand the growth potential of the company

Activity ratios

Management

To understand operation efficiency of the company. E.g. whether company is using its fixed assets effectively, whether company is able to collect cash from its debtors in timely manner, whether company’s inventory turnover is as per industry benchmark or not.

Capital Structure ratios

Investor /

Management/

Lenders

It helps management to decide whether company is properly leveraged or not. If company is aggressively financing its operations with debt, then the company is highly leveraged. Such company will have high level of risk but earnings to stakeholders will also be high. This strategic decision is crucial in optimizing company’s financing cost.

Capital Market Analysis ratios

Investors

These ratios help user to assess whether company’s shares are overpriced or under priced to take investment decisions

I hope this answer helps you to get some idea about reading of finacial statements.

Please feel free to ask for any clarification in case of amibuity.

Happy Chegging..