1. There are two (2) major characteristics of financial reporting,
A. Quantitative
B. Qualitative
Each of them has a major role in the interpretation and the usage of accouting
reporting.
Characteristics of qualitative are
Understandability
The information must be readily understandable to users of the financial statements.
This means that information must be clearly presented, with additional information
supplied in the supporting footnotes as needed to assist in clarification.
Relevance
The information must be relevant to the needs of the users, which is the case when the
information influences their economic decisions. This may involve reporting
particularly relevant information, or information whose omission or misstatement
could influence the economic decisions of users.
Reliability
The information must be free of material error and bias, and not misleading. Thus, the
information should faithfully represent transaction and other events, reflect the
underlying substance of events, and prudently represent estimates and uncertainties
through proper disclosure.
Comparability
The information must be comparable to the financial information presented for other
accounting period, so that users can identify trends in the performance and financial
position of the reporting entity.
Understandability
The information must be readily understandable to users of the financial statements.
This means that information must be clearly presented, with additional information
supplied in the supporting footnotes as needed to assist in clarification.
Relevance
The information must be relevant to the needs of the users, which is the case when the
information influences their economic decisions. This may involve reporting
particularly relevant information, or information whose omission or misstatement
could influence the economic decisions of users.
Reliability
The information must be free of material error and bias, and not misleading. Thus, the
information should faithfully represent transactions and other events, reflect the
underlying substance of events, and prudently represent estimates and uncertainties
through proper disclosure.
Comparability
The information must be comparable to the financial information presented for other
accounting periods, so that users can identify trends in the performance and financial
position of the reporting entity.
2. Examine the supporting financial statements and assess them to see how far in your
view they appear to contain the desirable characteristics of financial reports as outlined
above (see below).
What are the Qualitative Characteristics of
Accounting Information?
The demand for accounting information by investors, lenders, creditors, etc., creates
fundamental qualitative characteristics that are desirable in accounting information. There are
six qualitative characteristics of accounting information. Two of the six qualitative
characteristics are fundamental (must have), while the remaining four qualitative
characteristics are enhancing (nice to have).
Fundamental (Primary) Qualitative Characteristics
Qualitative characteristics of accounting information that must be present for information to
be useful in making decisions:
1. Relevance
2. Representational faithfulness
Enhancing (Secondary) Qualitative Characteristics
Qualitative characteristics of accounting information that impact how useful the information
is:
1.
2.
3.
4.
Verifiability
Timeliness
Understandability
Comparability
We will look at each qualitative characteristic in more detail below.
Relevance
Relevance refers to how helpful the information is for financial decision-making processes.
For accounting information to be relevant, it must possess:
1. Confirmatory value – Provides information about past events
2. Predictive value – Provides predictive power regarding possible future events
Therefore, accounting information is relevant if it can provide helpful information about past
events and help in predicting future events or in taking action to deal with possible future
events. For example, a company experiencing a strong quarter and presenting these improved
results to creditors is relevant to the creditors’ decision-making process to extend or enlarge
credit available to the company.
Representational Faithfulness
Representational faithfulness, also known as reliability, is the extent to which information
accurately reflects a company’s resources, obligatory claims, transactions, etc. To help, think
of a pictorial depiction of something in real life – how accurately does the picture represent
what you see in real life? For accounting information to possess representational faithfulness,
it must be:
1. Complete – Financial statements should not exclude any transaction.
2. Neutral – The degree to which information is free from bias. Note that there are
subjectivity and estimation involved in financial statements, therefore information
cannot be truly “neutral.” However, if a company polled 1,000 accountants and took
the average of their answers, that would be considered neutral and free from bias.
3. Free from error – The degree to which information is free from errors.
Verifiability
Verifiability is the extent to which information is reproducible given the same data and
assumptions. For example, if a company owns equipment worth $1,000 and told an
accountant the purchase cost, salvage value, depreciation method, and useful life, the
accountant should be able to reproduce the same result. If they cannot, the information is
considered not verifiable.
Timeliness
Timeliness is how quickly information is available to users of accounting information. The
less timely (thus resulting in older information), the less useful information is for decisionmaking. Timeliness matters for accounting information because it competes with other
information. For example, if a company issues its financial statements a year after its
accounting period, users of financial statements would find it difficult to determine how well
the company is doing in the present.
Understandability
Understandability is the degree to which information is easily understood. In today’s society,
corporate annual reports are in excess of 100 pages, with significant qualitative information.
Information that is understandable to the average user of financial statements is highly
desirable. It is common for poorly performing companies to use a lot of jargon and difficult
phrasing in its annual report in an attempt to disguise the underperformance.
Comparability
Comparability is the degree to which accounting standards and policies are consistently
applied from one period to another. Financial statements that are comparable, with consistent
accounting standards and policies applied throughout each accounting period, enable users to
draw insightful conclusions about the trends and performance of the company over time. In
addition, comparability also refers to the ability to easily compare a company’s financial
statements with those of other companies.
The qualitative characteristics of accounting information are important because they make it
easier for both company management and investors to utilize a company’s financial
statements to make well-informed decisions.

3 Firstly, the Annual Report's official and stated purpose is to provide shareholder owners and investors
with information on the company's recent financial performance and its current financial position. This
information is meant, above all, to enable shareholders to make informed decisions when electing
directors, and when deciding whether to buy, sell, or hold shares of stock.

Secondly, the Annual Report's less official but genuine purpose targets a broader audience. The audience
includes current shareholders and potential investors, of course, but also the company's employees,
customers, industry analysts, and competitors. For the broader audience, corporate officers and directors
intend to build confidence in the company's future.
As a result, some businesspeople regard the Annual report primarily as a marketing vehicle for the company
and its management. The reader's challenge—when reading any marketing message—is to decide which
interpretations of historical data are reasonable or likely, and which are more speculative.
Those who read the typical annual report carefully and fully will probably sense that challenge in every
significant section of the document. Discussions below emphasize both the factual data and the underlying
messages that officers and directors usually intend to communicate in each part of the Annual Report.
Annual Reports to Shareholders in most countries have a structure similar to that described by the US
Securities and Exchange Commission:
"The Annual Report to Shareholders is usually a state-of-the-company report, including..."

An opening letter from the Chief Executive Officer.

Financial data, to assess the company's financial position, results of operations, and key financial metrics.

Notes on the financial data describing specific accounting methods and explaining the reasons for specific
results.

Management discussion and interpretation of topics.

Market segment information: How the company defines its markets.

New product plans.

Subsidiary activities.

Research and development activities on future programs.
Shareholder and Investor Audience
This audience is the Annual Report's official reason for being. Reports prepare shareholders to make
informed decisions when (1) electing directors, and (2) deciding whether to buy, sell or hold the firm's
shares.
For this purpose, Reports present the mandatory financial statements and notes, but they also
highlight evidence showing that:

The firm's prospects for growth are excellent,

The company is competing effectively.

Management has known problems under control.
Employee, Customer, Industry Analyst, and Competitor Audience
Annual Reports often target this broader audience with presentations meant to build confidence in the
company's future, strengthen branding, and promote company business.
Q4.
2016
Net profit/loss
150
Add interest
Proft bfore int
2017
150
2018
2019
2020
180
200
125
(645)
-
-
75
75
180
200
200
570
Tax (EBIT)
A. PROFITABILITY RATIO
1.
Operating profit (gross margin) = operating profit / total income * 100%
2016
2017
1026/2250* 100
1200/3000*100
= 45.56%
= 40%
2019
2018
1480/4020*100
= 36.82%
2020
= 1570/4740*100
875/5100*100
= 33.12 %
= 17.16%
ii.net margin/net profit margin
2016
150/2250*100= 6.67%
2019
2017
2018
180/3000*100= 6%
200/4020*100= 4.98%
2020
200/4740*100 = 4.22%
570/5100* 100= 11.18%
Iii return on capital employed = net profit before interest and tax
Share capital + long term debt
2016
2017
2018
150/1055*100 = 14.22
180/1060*100% = 16.98%
200/1080*100% =18.52%
2019
2020
200/1015+500*100 =13.20%
570/370+500*100% = 65.52%
1v. return on share capital
Profit after tax preference dividend /share capital +reserves *100%
2016
2017
105/1035*100%
120/1060*100
= 9.95%
2018
= 11.32%
2019
135/1080*100%
=12,50%
2020
55/1015*100%
= 5.42%
(645)/370*100
=(174%)
b. efficiency ratio =
inventory turn over
= inventory/cost of sales *365
2016
20/1225*365= 6days
2017
25/1800*365= 5days
2018
40/2540*365= 6days
2019
50/3170*365=6days
2020
80/4225*365 = 7days
Ii Receivable turn over
Trade receivable/credit sales* 365
2016
2017
2018
200/2250*365=82 days
240/3000*365= 29days
363/4020*365= 33 days
2019
2020
434/4740*365=33 days
806/5100*365= 58 days
Iii creditors /payable turnover
= trade payable/credit purchase * 365
2016
2017
26/1224*365=8days
2018
31/1800*365=6days
2019
43/2540*365= 6days
52/3170*365 = 6days
2020
66/4225*365= 6 days
Cash cycles
Inventory turnover+receivables turnover- payable turnover
Inventory turnover
6
6
7
Receivable turnover
32 29 33 33
58
Payable turn overe
(8) (6) (6) (6)
=
30
5
6
28 33 33
(6)
58
Iv Asset turnover
Sales/income/share capital +reserves + long term debt / capital employed
2250/1055 = 2.13 times
4740/
3000/1060= 2.83 times
4020/1080 = 3.72 times