Question 1: FACTORS IN COMMUNICATING USEFUL INFORMATION (15 marks)

The primary objective of accounting is to provide information useful for decision making. To provide information that supports this objective, accountants must consider the intended users, the types of decisions users make with financial statement information, and available means of analysing the information.

Required: discuss this statement in terms of the following:

1. Who the Users of financial statement information are and the different purposes they are used for.

2. The Types of Decisions; Just as the knowledge level of potential users varies, the information needs of users also vary, depending on the decision at hand.

3. Because of the diversity of users, their different levels of knowledge, the varying information needs for particular decisions, and the general nature of financial statements, a variety of analysis techniques have been developed.

Explain the ratio method of analysis and how this technique appears to provide the most relevant information in a given situation.

Discuss 4 ratios of your choice in terms of the users, objectives, decisions and outcomes of the selected ratios.

Select a company of your choice and calculate 4 ratios based on data extracted from the financial statements. Briefly explain the interpretation of the result.

Note: Objectives of Ratio Analysis as suggested earlier; various users approach financial statement analysis with many different objectives.