Question

Gone are the days that shareholders had only one total sales figure and one total profit figure, from each financial year, to help them assess what the present and future performance of a company might be.

Discuss how international accounting standards have helped to highlight a range of important components, which will aid users in understanding company performance.

Answer 1

Yes, those days of less performance appraisal components has now over and now a days, we are having a hand-full various range of important components which are helping the users, the prospective investors and the analysts :

1) Sales growth: The rise in the turnover and other incomes would indicate the higher growth and return of the company.

2) Turnover ratios: The higher turnover ratios like Accounts Receivable and Inventory turnover ratios will bring out directions whether the company is on growth path or not.

3) Earnings per share: The per share earnings of the company going up shows that it is performing better in the industry and providing or would provide good returns to its shareholders.

4) Working Capital ratio: The calculation of the working capital ratio through dividing Current Assets with the Current Liabilities will show that company is having good liquidity due to good margin on the rising turnover. More than 2:1 will indicate excellent performance.

5) Debt – Equity Ratio: The rising debt – equity ratio shows that the company is having confidence in its earnings and can bear higher cost of debt. It also shows that the company is utilizing the leverage very well to benefits its shareholders, due to lower cost of debt than higher return on capital.

6) Price- earnings ratio: The higher Price-earnings ratio places a great importance to the investors due to higher the ratio indicate more and more investors are preferring the investment in the company shares. Higher the delivery ratio on daily bases shows the more chances of having higher prices in coming times.

7) Return on Equity: The net income attributable to the Common shareholders and the accumulated earnings directs the trigger towards better utilization of the shareholders fund. It also shows the upward trend of company’s growth.

The other components which shows better performance of the company are:

8) Presence of renowned Directors who is have hand in establishing many corporate.

9) Company’s projects of multi-million dollars are performing well, though return will follow in coming times.

10) Goods establishments of the company is many countries round the world.

11) Multi-business operating companies can seldom fall sick because either of its business would be running good at all times.

12) Good capital base company would be considered to be a component for the potential investors.

==============================