Business Analysis And Valuation System Essay

Question:

Discuss about the Business Analysis and Valuation System.

Answer:

Introduction:

The performances of an organization are based on the ratio analysis. The efficiency, probability, and liquidity of an organization can be estimated by the represented ratio. The industry benchmark and the budgeted results are compared with each other by the ratio analysis in Alex Blenheim Pty Limited (Alexander, Nobes, &Ullathorne, 2016).

Ratio

Actual 2016

Budget 2016

Actual 2015

Industry Benchmark

Return on equity %

12.9

16.6

14.8

15.5

Return on total assets %

10.7

14.2

13.1

14.5

Gross margin %

8.5

9.0

9.5

9.0

Marketing expenses/sales %

2.6

1.8

2.0

2.2

Admin expenses/sales %

1.6

1.6

1.8

2.0

Interest coverage ratio

5.4

8.1

6.4

6.0

Days in inventory

33.1

30.4

31.1

30.0

Days in accounts receivable

50.0

48.0

49.7

45.0

Current ratio

1.3

1.2

1.2

1.5

Quick asset ratio

0.81

0.77

0.77

1.0

Debt to equity ratio

0.51

0.33

0.41

.40

The company generates an equity estimated number from shareholder’s fund. The budget and the industry benchmark is more than the actual return on equity of the company in the year of 2014-2015 which is evident that the company is not so able in generating the return on the equity (Appannaiah, Reddy, & Putty, 2010). The company is not so efficient to take care of the assets which are proved by the actual return on total assets of the company in 2015-2016 which is less than the budget and the industry landmark. The actual result of the gross margin ratio demonstrates the performances of the company, that was less than the budget of 2016 and more than the industry benchmark of 2015. The fixed cost of the company is high because of the low ratio or gross margin. The ratio of actual marketing sale ratio is more than the budget of 2016 and less that the industry benchmark of 2015. When the market cost becomes more than the sales, then the higher ratio arrived. The ability of the organization to pay the interest cost is noticed by the interest coverage ratio which is less than the budget result of 2016 and more than the industry benchmark of 2015 (Beechy, &Conrod, 2008). The ratio of the paying of the interests by the company is identified by the high-interest and the low-interest coverage ratio. The current ratio shows that the organization can pay all the interests. The budget of 2016 is more than the actual current ratio, and the industry benchmark result of 2015 is more than the actual current ratio which is more than 1. When the ratio becomes more than one, then it shows that the company can pay all the obligations. The capacity of an enterprise to pay interests are known by the quick ratio results. The actual quick ratio is more than the budgeted result in the year 2016 and also less than the industry benchmark in the year 2015. The achievements of the target by the company can be shown by the actual quick ratio. During the year of 2015-2016, the level of debt of the company is known by the debt to equity ratio. The actual debt to equity ratio is more than the budget result and the industry benchmark for the year 2015 and 2016 respectively which shows the high debt level of the company. The current and the quick ratio are high in 2016. The financial ratio shows that the profit is less than the cost.

The fair value of the company is shown by the financial statements of the auditors. The financial report of the group is fairly represented by the audit process. The financial report can be affected by the internal audit function and audit control process. The financial statement analysis and the internal control can be done by the external auditors with the help of the internal auditors (Bragg, 2013). The effective control by the auditors can decrease the loss of assets and certify the accurate information and the regulation of the financial report. The financial report of the company is responsible for the market value of company and relationship of the internal and the external auditors.

Audit steps to reduce risk

The preparation and the presentation of the financial statement are dependent on the auditors. The internal auditor invents few issues that are:

The separation of the duties among the employees sometimes creates troubles. In large organizations, there are fewer probabilities of errors than that of the small organizations. In a large organization, the various difficulties are handled by the different specialist (Britton, & Waterston, 2013).

The management plays a major role in the monitoring and controlling the organization. The financial statement can be analyzing by the auditors who estimate the possibilities of error or false statements.

All the organizations are dependent on them, and the improper documentation can be effective for the companies. The auditors explain the job functions to the employee. The incorrect documentation can be harmful to both the employee and the companyduring the segregation of the duties (Burns, 2014). The documentation procedure and the policies can confirm the position of the company in the market.

The weak it controls, and the data security problem can be faced by the organization which is solved by the internal auditors. The internal auditors are concern about the safety and the security of the confidential data of the company, so they take care of it. The internal auditors always maintain the discipline, attention, determination which is a significant impact on the long-term goals of the organization.

The internal and external auditors, managers and the employees monitor all the problem of the organization and try to solve them.

The senior managers take care of the risk factors of the management committees and play a significant role in the implementation of the senior management department. The senior management adopts some strategies for the development of the company (Dalton, 2013).


The auditors are responsible for the fair presentation and providing the significant information to the shareholders. The auditors play a role in the solving of the problems arises by the shareholders. In the analysis of the material and the presentation of the final report, the auditors play a significant role. The auditors supply the techniques to the company and apply the method through which they can determine the mistakes or errors (Helb?k, Lindset, & McLellan, 2010). The auditors can determine the risk factors and help in the implementations of the techniques, strategies and they try to overcome the problem faced by the company. The auditors can help to monitor and decrease the errors. The processes of the organizations should be managed, and the auditors play a significant role in presenting fair value and provide significant information to the stakeholders.

These internal control weaknesses can be managed easily or can be rectified quickly by slightly modifying the existing procedures or bringing out the necessary internal controls. Some of the levels are greater to some extending this level of the adult risk and the social responsibilities. The internal control weaknesses are pivotal and reduce the appropriateness of the auditing. There are several internal control weaknesses which can be the reason for the loss or damage of the property, resources, as well as it can reduce the income of the organization (Northington, 2011). There are various internal control weaknesses that influence the audit practices within the organizations. Some of the major internal control weaknesses are: inadequate documentation/records, central business cycles inappropriately defined, lack of control over authorized transaction, no oversight plus review, lack of physical and logical security, the inventory control weakness etc. Moreover, the inventory control weakness is one of the most important internal control weakness. The inventory is one of the most critical area of error, the area is prone to be error. The auditors have to be alert at the time of auditing that the all inventory item are properly recorded. The auditors have to check manually all records of the stocks. The records must be check with the physical evidence of the inventory stocks. In is highly intense area, where the audit risk can be arose.

Inadequate documentation/records

With proper numbering of documentation, helps in tracing the records when necessary. It was required for the auditing of the way in the property in similar such a way there are several items in the auditing that many of the documentation will severely in such manner that purpose of verification with appropriate budgeted in the significant landmarks. Moreover, sufficient documentation will make the procedure easy of enforcing financial records as well as completing tax returns. The tracing of the literature which connects to follow up queries as well as the question from the consumers of the past transaction can be easier (Palepu, Healy, & Peek, 2016). This will support in preventing to record the same transaction in multiple places in multiple time as there must not be any of the duplicate numbers in the system. Proper documentation helps in giving the satisfactory answer to the queries about the financial transactions. The documentation gives evidence of the underlying transactions. The financial documents must be pre-numbered to ensure that the entire transactions are recorded as well as accounted for help in tracing the records when necessary.

The sales and the accounts receivable, cash management, banking process, purchase along with account payable. At the time the development plus changes are made to the procedures, the employees can be informed quickly, to train and brought up to the speed. Possibly the most unapplied control tools where the most value can be included with small effort. Documenting the primary controls is each of this cycle will give transparency, consistency, as well as distinct roles and responsibilities in every single of these cycles, which can be quickly assigned to the particular individual. As the business have diverse focal areas different period will be significant to your business; however, for the maximum numbers of business, the following procedures can be critical. Consistency, as well as distinct roles and responsibilities in every single of these cycles, which can be quickly assigned to the particular individual (Parker, 2007).

Lack of control over authorized transaction

A particular dollar value can reduce the overall expenditure because the degree of authority can be brought up superior reduction for the risk or threat of improper payment. Authorization of the buying must occur before the commitment of the resources.

The business owners or management must take few time as well as interest in the financial record of the organization. The business group uses to get so involved with the day to day business operation that the team often forgets to review their business process (Ricchiute, 2006).

Apart from this, insufficient disaster recovery is also impeding the development and growth of the organization. Deficiency of the physical safety of the business property plus resources might influence the outcome in loss or damage to the goods and resources. No formal ethical policies and methods then the organization may face difficulties in establishing the integrity and ethics within the employees of the organization. The overhead required to be maintained under control to ensure that a clear profit outcome from its operation. Thus from this insufficient was directly from the values of the organization that has some recovery in the business property. Deficiency of the physical security of the buildings plus resources might influence the outcome of loss or damage to the goods and resources. The company lack in proper documentation as the company failed to put a unique number to the documents that slow down the assessment process. Access to the tools, petty cash as well stock verification must be restricted to the proper person and must be stored in a secure location. The undertaken business organization Alex Blenheim operates in comparatively low gross margin business environment. The overhead required to be maintained under control to ensure that a clear profit outcome from its operation (Subramanyam, 2014).

Audit impact

It helps the management to make the important management decision for the company. For improper documentation of the financial records can misguide the auditors about the financial position of the organizations. The income statement helps in showing the revenues and expenses of the company, within the pre-specified period. The cash flow can be of two type’s cash inflow and cash outflow. The cash flow statement shows both the cash inflow and the cash outflow. The financial statement is mainly of three kinds: balance sheet, income statement and cash flow statement. Besides this, there are different expenses also, and the expenses also recorded in the income statement of the company. The internal audit usually performed within the enterprise and the company's auditor use to carry out the inspection tasks (Weil, 2017). The statements are various ranging in order with financial records of the organization. When some of the income rates are not probably maintained by any of the company than some of the economic systems that are auditory take right steps in order of audit performed. The financial statements provide indifferent information to the users, and the auditors are responsible for recognizing the mistakes of the financial statements.

Audit steps to reduce risk

To verify the account receivables and account payable very minutely as well as the inventory is also an effective audit risk thus the records of the inventory must be checked manually with the files of the commercial segments. The auditors have to take few steps to reduce the danger of the auditing. Hence, the accounts must take adequate steps so that the audit risk can be minimized. The financial statements such as they auditors have to check the journal entries also as it helps in assessing the errors of the financial statement (Welch, 2014). The job roles and responsibilities must be clearly defined so that there would not be any confusion about the job. There are some variables in order of high clearance of payable is also critical of the records from some gross margin business environment. Authorization of the buying must occur before the commitment of the resources. Help in aligning the business objectives as well as support in establishing best practices for the operating procedure.

Computer-assisted programs are designed for use during the auditing process. They help to establish the audit process in the appropriate way. Auditing procedures involve ample processing of data which is much simplified by such computerized programs. The accounting system for clients helps in the appropriate specification with the help of features integrated for improving the comprehensiveness of the system. Such systems also help to control sustentative transactions for depiction as leaving skilled resources. The three computer-assisted methods involved in the preparation of an audit report are described as follows:

The packaged programs which are generalized in nature: These generalized systems have to be modified slightly to define the exact format of the file. The parameters also can also be interrogated by the program by giving the data that requires extraction. The data structure required to be provided can be expanded through displaying the right format of the files which would be the outputs. Thus the data becomes very convenient to handle and flexible as well when it is processed through such computer systems. The software just requires some modification for the exact format for which it is to be used, and after that, it would make tasks much easier.

Programs are written for a purpose- The programs of this type are designed specifically for particular purposes and thus need no modification. These are usually used by appropriate organizations in their several operations. These applications are also operable in machines with particular specifications(Rahman, 2015). The categorization within such software is very necessary for displaying the appropriate procedures for the particular data. According to the different categories of machines, the processing of the data differs. The enhanced effectiveness of the data can be easily identified by the show of enhancement of data.

Utility based programs for use by clients- The use of such programs is on the display of the data related to the performance. This is done by assessing the performance in terms of the various functions and sorting them accordingly to present the data in a very user-friendly format.

When the software is used in auditing, the checks on the calculation are conducted, and these are also displayed to the user. Thus the users can be sure that the audit would be error free. The detection of the errors is made by displaying every entry which is relevant to the identification of the purchases. Any violation of the rules of auditing can be easily depicted through the display of the statement that there is no effective calculation of customer balance. This is in turn done by showing the specification of the limit for credit. Thus the unreasonable parts of the calculation are then displayed by the display of the appropriate discounts. The detection performed shows that the sales ledger balance was displayed as debtor's balance. The statistical analysis is performed by appropriately selecting the audit testing process. The completion of the process of checking is made by showing the process of audit testing. The continuity in sales is checked by the display of the sales invoices and by ensuring the accounted processes involved for benefiting the customers or the stakeholders. Hence the classification of the ledger balance can be easily show3n by depicting the appropriate work structure. Hence the structure can be easily depicted by appropriately implementing the circularization of debtors. The inclusion of strategic balance can also be easily done by identifying the items which are slow moving. The ledger balance of the sample sales is thus very efficiently handled by such software and program becomes a complete assistance for the conduct of audit for different organizations. The software is extremely capable in this regard and proves extremely useful to the auditors. The strategic balance is very efficiently maintained by conducting all the activities with the same accuracy and providing recovery options and cross checks at every step of the audit. The costs of the software are high, with set up costs involved as well. But the costs should be borne by organizations needing efficient audit assessment and accurate results.

References

Alexander, D., Nobes, C., &Ullathorne, A. (2016). Financial accounting. Harlow, England: Pearson.

Appannaiah, H., Reddy, P., & Putty, R. (2010). Financial accounting. Mumbai [India]: Himalaya Pub. House.

Beechy, T., & Conrod, J. (2008). Intermediate accounting. Toronto: McGraw-Hill Ryerson.

Bragg, S. (2013). Financial analysis. Hoboken, N.J.: Wiley.

Britton, A., & Waterston, C. (2013). Financial accounting. Harlow: Financial Times Prentice Hall.

Burns, P. (2014). Business Finance. Elsevier Science.

Dalton, H. (2013). Principles of Public Finance. Hoboken: Taylor and Francis.

Helb?k, M., Lindset, S., & McLellan, B. (2010). Corporate finance. Maidenhead, Berkshire: Open University Press/McGraw-Hill Education.

Northington, S. (2011). Finance. New York, NY: Ferguson's.

Palepu, K., Healy, P., & Peek, E. (2016). Business analysis and valuation. Andover, Hampshire, United Kingdom: Cengage Learning EMEA.

Parker, R. (2007). Understanding company financial statements. London: Penguin.

Parrino, R. (2015). Corporate Finance. Singapore: John Wiley & Sons.

Powers, M., & Needles, B. (2012). Financial accounting. [Mason]: South-Western, Cengage Learning.

Rahman, N. (2015). Corporate Finance. North Ryde: McGraw-Hill Australia.

Ricchiute, D. (2006). Auditing. Mason, Ohio: South-Western/Thomson Learning..

Subramanyam, K. (2014). Financial statement analysis. New York: McGraw-Hill Education.

Weil, R. (2017). Financial accounting. [Place of publication not identified]: Cengage Learning.

Welch, I. (2014). Corporate finance. Los Angeles: Ivo Welch.

How to cite this essay: