This document provides an overview of a study on financial statements. It begins with an introduction that outlines the objectives and research methodology. It then reviews relevant literature on financial statements and reporting. Financial statements are the primary tools for evaluating a company's financial health and include the balance sheet, income statement, and statement of cash flows. The document discusses how financial statements are used and interpreted by investors and analysts and notes some limitations. It provides background on key concepts like primary and secondary data sources. The research methodology section indicates that both primary data from questionnaires and secondary data from publications were used for the study.
3. CHAPTER 1
INTRODUCTION
finance, the process of raising funds or capital for any kind of expenditure.
Consumers, business firms, and governments often do not have the funds
available to make expenditures, pay their debts, or complete other
transactions and must borrow or sell equity to obtain the money they need
to conduct their operations. Savers and investors, on the other hand,
accumulate funds which could earn interest or dividends if put to
productive use. These savings may accumulate in the form of savings
deposits, savings and loan shares, or pension and insurance claims; when
loaned out at interest or invested in equity shares, they provide a source
of investment funds. Finance is the process of channeling these funds in the
form of credit, loans, or invested capital to those economic entities that
most need them or can put them to the most productive use.
Financial Statements
Financial statements are written records that convey the business activities
and the financial performance of a company. Financial statements are
often audited by government agencies, accountants, firms, etc. to ensure
accuracy and for tax, financing, or investing purposes. For-profit primary
financial statements include the balance sheet, income statement,
statement of cash flow, and statement of changes in equity. Non-profit
entities use a similar but different set of financial statements.
Investors and financial analysts rely on financial data to analyze the
performance of a company and make predictions about the future direction
of the company's stock price. One of the most important resources of
reliable and audited financial data is the annual report, which contains the
firm's financial statements.
The financial statements are used by investors, market analysts, and
creditors to evaluate a company's financial health and earnings
4. potential. The three major financial statement reports are the balance
sheet, income statement, and statement of cash flows.
Although financial statements provide a wealth of information on a
company, they do have limitations. The statements are open to
interpretation, and as a result, investors often draw vastly different
conclusions about a company's financial performance.
When analyzing financial statements, it's important to compare multiple
periods to determine if there are any trends as well as compare the
company's results to its peers in the same industry.
Last, financial statements are only as reliable as the information being fed
into the reports. Too often, its been documented that fraudulent financial
activity or poor control oversight have led to misstated financial statements
intended to mislead users. Even when analyzing audited financial
statements, there is a level of trust that users must place into the validity of
the report and the figures being shown.
Financial statements are read in several different ways. First, financial
statements can be compared to prior periods to better understand changes
over time. For example, comparative income statements report what a
company's income was last year and what a company's income is this
year. Noting the year-over-year change informs users of the financial
statements of a company's health.
Financial statements are also read by comparing the results to competitors
or other industry participants. By comparing financial statements to other
companies, analysts can get a better sense on which companies are
performing the best and which are lagging the rest of the industry.
Financial Reporting provides information to investors and creditors about the
investment model of the business and how efficiently and rationally the funds are
invested. The genuine information answers many doubts about lending options to a
borrower, providing a loan to a customer, and investing in a business. Financial
Reporting helps decide the prospects and profit generation potential of a company.
OBJECTIVES OF THE STUDY
5.
6.
7. Research Methodology
What is research methodology?
Research methodology simply refers to the practical “how” of any given piece of
research. More specifically, it’s about how a researcher systematically designs a
study to ensure valid and reliable results that address the research aims and
objectives.
For example, how did the researcher go about deciding:
8. What data to collect (and what data to ignore)
Who to collect it from (in research, this is called “sampling design”)
How to collect it (this is called “data collection methods”)
How to analyse it (this is called “data analysis methods”)
In a dissertation, thesis, academic journal article (or pretty much any formal piece of
research), you’ll find a research methodology chapter (or section) which covers the
aspects mentioned above. Importantly, a good methodology chapter in a
dissertation or thesis explains not just what methodological choices were made, but
also explains why they were made.
In other words, the methodology chapter should justify the design choices, by
showing that the chosen methods and techniques are the best fit for the research
aims and objectives, and will provide valid and reliable results. A good research
methodology provides scientifically sound findings, whereas a poor methodology
doesn’t. We’ll look at the main design choices below.
What is Primary Data?
Primary data is a type of data that is collected by researchers directly from main
sources through interviews, surveys, experiments, etc. Primary data are usually
collected from the source—where the data originally originates from and are
regarded as the best kind of data in research.
The sources of primary data are usually chosen and tailored specifically to meet the
demands or requirements of particular research. Also, before choosing a data
collection source, things like the aim of the research and target population need to
be identified.
For example, when doing a market survey, the goal of the survey and the sample
population need to be identified first. This is what will determine what data collection
source will be most suitable—an offline survey will be more suitable for a population
living in remote areas without an internet connection compared to online surveys.
Examples of Primary Data
Market Research
9. This is an important aspect of business strategy that involves the process of
gathering information about the target market and customers. The data gathered
during market research is primary as it is tailored specifically to meet the business
needs.
An organization doing market research about a new product (say phone) they are
about to release will need to collect data like purchasing power, feature preferences,
daily phone usage, etc. from the target market. The data from past surveys are not
used because the product differs.
Student Research Project
When conducting academic research or a thesis experiment, students collect data
from the primary source. The kind of data collected during this process may vary
according to the kind of research being performed—lab experiments, statistical data
gathering, etc.
For example, a student carrying out a research project to find out the effect of daily
intake of fruit juice on an individual’s weight will need to take a sample population
of 2 or more people, feed them with fruit juice daily and record the changes in their
weight. The data gathered throughout this process is primary.
What is Secondary Data?
Secondary data is the data that has already been collected through primary sources
and made readily available for researchers to use for their own research. It is a type
of data that has already been collected in the past.
A researcher may have collected the data for a particular project, then made it
available to be used by another researcher. The data may also have been collected
for general use with no specific research purpose like in the case of the national
census.
10. Data classified as secondary for particular research may be said to be primary for
another research. This is the case when data is being reused, making it primary data
for the first research and secondary data for the second research it is being used for.
Sources of Secondary Data
With the advent of electronic media and the internet, secondary data sources have
become more easily accessible. Some of these sources are highlighted below.
Books
Books are one of the most traditional ways of collecting data. Today, there are books
available for all topics you can think of. When carrying out research, all you have to
do is look for a book on the topic being researched, then select from the available
repository of books in that area. Books, when carefully chosen are an authentic
source of authentic data and can be useful in preparing a literature review.
Published Sources
There are a variety of published sources available for different research topics. The
authenticity of the data generated from these sources depends majorly on the writer
and publishing company.
Published sources may be printed or electronic as the case may be. They may be paid
or free depending on the writer and publishing company’s decision.
Unpublished Personal Sources
This may not be readily available and easily accessible compared to the published
sources. They only become accessible if the researcher shares with another
researcher who is not allowed to share it with a third party.
For example, the product management team of an organization may need data on
customer feedback to assess what customers think about their product and
improvement suggestions. They will need to collect the data from the customer
service department, which primarily collected the data to improve customer service.
11. Research Method Used In the Project
For this project both Secondary Data and Primary data were chosen in analysing the
research project. The data were gathered from Journals, Articles, Internet,
questionnaire and other published materials.