Introduction to Accounting (Level 4)

Introduction to Accounting (Level 4)

Introduction

Companies represent their Accounting information in different types of statements termed “Financial Statements”. These accounting information are necessary for a company to publish so that the investors analyze them before making an investment decision. The main aim of this accounting information is to keep on a track record of the company's financial records. They are the tool for investors and the users of the financial statements to analyze and evaluate the financial performance, strength and liquidity of the business. Therefore, the financial statements give a reflection of the financial activities of the company (Brigham et al., 2010).

Company Selected for the Evaluation

The company selected for this assignment is ZARA. The analysis of the financial records of Zara shows that the sales revenue of the company is increasing. Increase in sales is a good sign with respect to the shareholders and investors. Zara is a pioneer brand in the fashion industry recognized by its customers all over the world. Therefore, the sales of Zara fashion brand are increasing due to new designs. The store wise sales also have increased from 2008 and hence it shows an up beating trend of increasing the revenues. Increase in the annual sales would motivate company to open new stores in different parts of the country. On the other hand, a net income also increases from 1.3 billion to 2.4 billion Euros. The cash flow also increases from 1.8 to 3.2 Billion Euros.

Groups Interested in Financial Statements

There are a number of stakeholders which who are interested in the financial statements of the company. The stakeholders are also termed as users of the financial statements each of the user uses the accounting information having their own perspective and goal. Some of the users of financial statements of the company (ZARA) are as follows:

Owners

Investors

Creditors

Managers

The selected users of financial statements have different perspectives as discussed below:

Critically Examining the Users Perspectives

Owners

The first group includes people who have responsibility for the actions of the company, as owners, partners, directors, managers, supervisors and other employees. Administrators decide what to do, how and when and responsibility they hold, are major users of information.

Users

Interest Based Functions

Users Decision

Owners

(Directors, Mangers, Board)

Control, coordinate and plan;

Predicting lack & excess cash

Programming decisions

Maintain & increase gain levels

Offer products & services quality lower costs

Creating new products & services, to innovate

Valuate employee performance;

Promote the growth of the company;

Achieve greater market share; Increase productivity;

Maximize results and minimize costs;

Profitability and liquidity of the organization;

Meeting the needs of customers

Investors

Investors are the most potential group who uses the accounting information for the purpose of making and finalizing the investment decisions. The better the financial position of the company the more the investors put their money into it. They analyze the financial activities with a view to make long term of short term investments. Through the company results they analyze the risk factor as well as, the performance factor.

Users

Interest Based Functions

Users Decision

Investors

Profitability and liquidity of the organization

Successful past / potential ...