Analysis Of Financial Reports For Retail And Manufacturing Businesses

Retail Business

This report has been presented to analyze the different business types and the way that companies precede to their financial statements. Retail businesses involves with the process of selling out the products and services to the customers through many distribution channels to make profits whereas manufacturing business is the process where raw components are transmitted into finished product. These finished goods could be directly sold by company to the customers.

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Retail business and manufacturing businesses record the transaction differently. Their ways of preparing the financial reports, the format of financial report and the disclosure extend of the businesses are different. Different transaction records, process of financial reports, format of financial report and disclosure extend has been analyzed in this report of retail businesses and manufacturing businesses to analyze the different aspects which are considered by different business types.

This report helps the user to understand the different business types and their process of preparing the final financial reports. This report is quite important for the users to understand the different aspect of final financial report with different business types. The main objective of this report is to provide some detailed information about the accounting of different businesses to the reader and user.          

Retail business is a business type where the products and services are sold to many consumers through many distribution channels. Retail business sells out finished products to consumers in consideration of money. Retail goods could be sold through many kiosks, stores, internet or mails.

Retail businesses transact the record on daily basis so that a proper planning could be done by stores at the end of the day. Retail businesses record the transaction of credit purchase, cash purchase, cash sales, credit sales etc. these transactions are recorded by the retail business to maintain and administrate every financial activity of the company (Bojadziev, 2007).

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The process of preparing the financial reports of retail business is quite different from manufacturing business as this process considers daily transaction of the company, ledger entries of every party of the company etc. first of all, trial balance is prepared by the company to analyze the equal balance of both debit and credit side of the business. Further, income statement is prepared by the businesses to analyze the net profit of the company after all the deductions (Yang, Hong and Modi, 2011). After it, balance sheet and cash flow statement is prepared by the businesses to analyze the net cash flow of the business i.e. the total cash and bank balance left in the hand of the business after the end of a particular period.

Manufacturing Business

The process of these reports is quite different in retail business from other business types as in retail business; the considered aspects are different than other business types.

In retail business, the liquidity position, net profit, net profit margin, sales, borrowings, assets, liabilities etc are analyzed to meet the obligation of business. For analyzing the liquidity position of company, operating cash flow analysis is done. Some liquidity conditions are attached in retail business to analyze the liquidity condition of company. These conditions depict that even the sales of the business has been increased but the liquidity position still could be fallen due to the less current assets in comparison of current liabilities (Martani and Khairurizka, 2009).

Profit and profit margin of the company could be analyzed through income statement of the company. The profit margin of the company could be affected through many internal and external changes such as tax, depreciation, direct material, direct labor etc.

The financial record format of retail business is as follows:

Income Statement Data

2016

2015

Changes

Sales (Income)

XXXX

XXXX

XX%

Cost of Sales (COGS)

XXXX

XXXX

XX%

      COGS b

XXXX

XXXX

XX%

      COGS A

XXXX

XXXX

XX%

Gross profit

XXXX

XXXX

XX%

Gross profit margin

XXXX

XXXX

XX%

Depreciation

XXXX

XXXX

XX%

Amortization

XXXX

XXXX

XX%

Interest expenses

XXXX

XXXX

XX%

Overhead or other expenses

XXXX

XXXX

XX%

     Payroll/wages/ salary

XXXX

XXXX

XX%

     Rent

XXXX

XXXX

XX%

      Advertising

XXXX

XXXX

XX%

      Payroll

XXXX

XXXX

XX%

       SG&A

XXXX

XXXX

XX%

Other operating income

XXX

XXX

XX%

other operating expenses

XXX

XXX

XX%

Net profit after taxes

XXX

XXX

XX%

Adjusted net profit before taxes

XXX

XXX

XX%

Net profit margin

XXX

XXX

XX%

EBITDA

XXX

XXX

XX%

Other income

XXX

XXX

XX%

Other expenses

XXX

XXX

XX%

Taxes paid

XXX

XXX

XX%

Net income

XXX

XXX

XX%

Balance sheet data

2016

2015

Changes

Cash (Bank Funds)

XXXX

XXXX

XX%

Accounts Receivable

XXXX

XXXX

XX%

Inventory

XXXX

XXXX

XX%

Other Current Assets

XXXX

XXXX

XX%

Total Current Assets

XXXX

XXXX

XX%

Gross Fixed Assets

XXXX

XXXX

XX%

       Fixtures

XXXX

XXXX

XX%

          Vehicles

XXXX

XXXX

XX%

          Equipment

XXXX

XXXX

XX%

         Leasehold Improvements

XXXX

XXXX

XX%

       Bodges

XXXX

XXXX

XX%

       Land

XXXX

XXXX

XX%

Accumulated Depreciation

XXXX

XXXX

XX%

Net Fixed Assets

XXXX

XXXX

XX%

Gross Intangible Assets

XXXX

XXXX

XX%

Accumulated Amortization

XXX

XXX

XX%

Net Intangible Assets

XXX

XXX

XX%

Other Assets

XXX

XXX

XX%

Total Assets

XXXXX

XXXXX

XX%

Accounts Payable

XXX

XXX

XX%

Other Current Liabilities

XXX

XXX

XX%

Current Portion of Long Term Debt

XXX

XXX

XX%

Total Current Liabilities

XXX

XXX

XX%

Notes Payable / Senior Debt

XXX

XXX

XX%

Notes Payable / Subordinated Debt

XXX

XXX

XX%

Other Long Term Liabilities

XXX

XXX

XX%

Long Term Liabilities

XXX

XXX

XX%

Total Liabilities

XXXX

XXXX

XX%

Preferred Stock

XXX

XXX

XX%

Common Stock

XXX

XXX

XX%

Additional Paid-in Capital

XXX

XXX

XX%

Other Stock / Equity

XXX

XXX

XX%

Ending Retained Earnings

XXX

XXX

XX%

Total Equity

XXXX

XXXX

XX%

Z-Score

XXXXX

XXXXX

XX%

( Koren, 2010)

The extent of disclosure of financial statements and its determinants in the enhancing capital market of retail business has been analyzed and it has been found that every company is obligated to disclose all the relevant information in the annual report of business and it has been found that in retail business, companies need to disclose about all the sales company has done in the assessment year. Company also needs to disclose about all the new activities, investments, projects, new markets, amortizations etc to enhance the worth of annual report.

Manufacturing business is a business type where the products are manufactured by company, in this company transforms the raw material into finished goods to sell out the products to the consumers. Manufacturing business sells out finished products to consumers through many channels in consideration of money (Sweeney and Coughlan, 2008). Manufacturing businesses could directly sell the goods to consumers or could use many channels.

Manufacturing businesses transact the record on periodic basis so that a proper planning could be done by stores for the next period. Manufacturing businesses record the transaction of credit purchase of direct material, cash purchase of direct material, direct labor used, overheads, etc. (Kolk and Perego, 2010) these transactions are recorded by the manufacturing business to maintain and administrate every financial activity of the manufacturing house.

The process of preparing the financial reports of manufacturing business is quite different from retail business as this process considers periodic transaction of the company, cost sheet, manufacturing house activities etc. Cost sheet is prepared by the company to analyze the cost of manufactured product. Further, many accounting concept such as absorption costing, accounting control, cost, control, direct costing, deferred changes, matching, planning etc concepts are used to evaluate the financial position of company (Higgins, 2012). Many accounting terminologies are used such as amortization, indirect cost, inventory, contribution margin, bonds, credit, bad debts etc. 

Financial Reporting

The process of these reports is quite different in manufacturing business from other business types as in manufacturing business; the considered aspects are different than other business types.

There are huge numbers of financial statement in manufacturing house to understand the critical relationship and analyze the financial statements accordingly. This relationship could be summarized into simple equations of mathematics. Some relationships are as follows:

Cost of goods manufactured statements:

Material used = materials (beginning) + material purchases – materials inventory (ending)

Cost of goods manufactured = materials used + factory labor + manufacturing overhead + work in process (beginning) – work in process (ending)

Cost of goods sold = finished goods (beginning) + cost of goods manufactured finished goods (ending)

Beginning finished goods + cost of goods manufactured are often known as total finished goods existing for sales.

Net income = sales – cost of goods sold – operating expenses (Kirkos, Spathis and Manolopoulos, 2007)

Change in cash = sources and uses from operations + sources and uses from

Financing activities + sources and uses from investing activities.

Assets = liabilities + stockholders’ equity

Assets = current assets + fixed assets + other assets

Liabilities = current liabilities + long-term liabilities (Saunders and Cornett, 2014)

Stockholders’ equity = common stock + premium/discount on common stock +

(Jouini, 2013)

(Healy and Palepu, 2012)

The extent of disclosure of financial statements and its determinants in the enhancing capital market of manufacturing business has been analyzed and it has been found that every company is obligated to disclose all the relevant information in the annual report of business and it has been found that in manufacturing houses, companies need to disclose about all the manufactured goods and services. Company also needs to disclose about all the new activities, investments, projects, new markets, amortizations etc to enhance the worth of annual report.

Through analyzing both the reports it has been found that the transaction records, process of preparing financial reports, extent of disclosure and financial report format of retail business and manufacturing business is different from each other. Such as retail businesses records the transaction on daily basis whereas in manufacturing houses, transactions are recorded after a particular period or at the time of completion of one batch. Manufacturing houses and retail business have different nature thus it impacts over the activities are records of the company (Geraedts, Doubrovski, Verlinden and Stellingwerff, 2012).

It has been analyzed that the preparation of both the businesses are different as they consider different aspect while preparing the financial reports of company. Retail houses considers the credit purchase, cash purchase, cash sales, credit sales etc. whereas manufacturing houses considers the cost of goods sold, overhead absorption, costing method, depreciation etc to prepare the financial report of company.

Transaction Recording

The disclosure done by both the companies are quite similar. The only difference is disclose about the costing method, depreciation method, absorption costing by manufacturing house and new promotional techniques and new markets by retail houses (Behrouzi and Wong, 2011). The format of financial report is quite differed of both the businesses as one is based upon accounting and another one based upon costing techniques.

The accounting cycle of retail business and manufacturing business are quite similar, the only difference between both the businesses are that in manufacturing house, entries are made at the end of the period. Manufacturing businesses create 3 inventory accounts whereas only 1 inventory account is prepared in retail business (David, 2011).

Conclusion:

Through analyzing this report, it has been analyzed that manufacturing houses and retail houses are quite different in nature. Their way of disclosing the information, process of preparing the reports, formats of final accounts are quite different.  Manufacturing businesses create 3 inventory accounts whereas only 1 inventory account is prepared in retail business. the difference in accounting concept of both the businesses are costing method, depreciation method, absorption costing by manufacturing house and new promotional techniques and new markets by retail houses.

Retail houses considers the credit purchase, cash purchase, cash sales, credit sales etc. whereas manufacturing houses considers the cost of goods sold, overhead absorption, costing method, depreciation etc to prepare the financial report of company. Thus it could be said that both the businesses are quite different from each other in terms of accounting, operations, activities and nature.

References:

Behrouzi, F. and Wong, K.Y., 2011. Lean performance evaluation of manufacturing systems: A dynamic and innovative approach. Procedia Computer Science, 3, pp.388-395.

Bojadziev, G., 2007. Fuzzy logic for business, finance, and management (Vol. 23). World Scientific.

David, F.R., 2011. Strategic management: Concepts and cases. Peaeson/Prentice Hall.

Geraedts, J., Doubrovski, E., Verlinden, J. and Stellingwerff, M., 2012, May. Three views on additive manufacturing: business, research and education. In Ninth Int. Symp. Tools Methods Compet. Eng., I. Horváth, A. Albers, M. Behrendt, and Z. Rusák, Eds (pp. 1-15).

Healy, P.M. and Palepu, K.G., 2012. Business analysis valuation: Using financial statements. Cengage Learning.

Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

Jouini, F., 2013. Corporate governance and the level of financial disclosure by Tunisian firm. Journal of Business Studies Quarterly, 4(3), p.95.

Kirkos, E., Spathis, C. and Manolopoulos, Y., 2007. Data mining techniques for the detection of fraudulent financial statements. Expert systems with applications, 32(4), pp.995-1003.

Kolk, A. and Perego, P., 2010. Determinants of the adoption of sustainability assurance statements: An international investigation. Business Strategy and the Environment, 19(3), pp.182-198.

Koren, Y., 2010. The global manufacturing revolution: product-process-business integration and reconfigurable systems (Vol. 80). John Wiley & Sons.

Martani, D. and Khairurizka, R., 2009. The effect of financial ratios, firm size, and cash flow from operating activities in the interim report to the stock return. Chinese Business Review, 8(6), p.44.

Saunders, A. and Cornett, M.M., 2014. Financial institutions management. McGraw-Hill Education,.

Sweeney, L. and Coughlan, J., 2008. Do different industries report corporate social responsibility differently? An investigation through the lens of stakeholder theory. Journal of Marketing Communications, 14(2), pp.113-124.

Yang, M.G.M., Hong, P. and Modi, S.B., 2011. Impact of lean manufacturing and environmental management on business performance: An empirical study of manufacturing firms. International Journal of Production Economics, 129(2), pp.251-261.