Introduction on Assessing Financial Performance
The financial assignment performance of a company is assessed by evaluating its statements prepared by the managers. They are made on the basis of all income and expenditures done by the unit. Further a study is conducted to know the position of the firm in the competitive market. In this project, financial health of a company is known by showing its income statement and balance sheet. On the basis of the data provided in the case, it is these are drawn. From this; the owner will be able to know its performance in financial terms and assess the loss and profits occurred. These statements are the best tool to judge a company(Ajao and Obida., 2012).
It is right that the amount which John Hendry has taken from the company should not be classified as drawings. This amount has been taken for personal uses and will be considered as debited in the cash balance. It is for this reason that amount for other use than business is not taken as drawings (Chong and Ferdiansah, 2011). Rather, it can be shown that if the amount is taken for some other expenses to be used in the company, then it can show as indirect expenses in profit and loss account. This then will be more useful and it will be easier for the financial mangers to evaluate the data appropriately. It is being suggested that though he has taken cash from company, but it is possible that he utilizes this for fulfilling purpose of business indirectly indicating as indirect expenses (Abdulla and Joshi, 1996).
By preparing the data based on financial figures, it becomes easy for company as well as the stakeholders to know that where it is heading on. The investors will become aware of the profitability of a business unit and can decide that whether they should invest in a particular company or not. The company also will know that about its gains and how it shall improve upon it further (Angahar, 2012).
- Ajao, S. and Obida. 2012. Liquidity Management and Corporate Profitability: Case Study of Selected Manufacturing Companies Listed on the Nigerian Stock Exchange. [pdf]. Available through
Bragg, S. and Burton, E., 2006. Accounting and finance for your small business. Wiley.