To What Extent Are a Company's Annual Report and Accounts Essay

To What Extent Are a Company's Annual Report and Accounts - Essay Example The decisions made by these executives are made on the basis of the calculations resulting from value added. If the value added ensures an improvement in the value of single unit of supply input then the decision is directed accordingly (Gilchrist, R., 1971). The concept of value added is greatly described by Bernard Cox in his book ‘Value Added: an appreciation for the accountant concerned with industry’. In this book the author has explained various methods through which value added can be made useful in managerial applications, evaluating the annual reports and account of the company. The most applicable way understanding and utilizing value added is to subtract purchases from sales and sum up profits generated by the company, depreciation expense accumulated over the assets, interest expense for the loans made by the company, payroll costs which is the amount paid to the employees and workers, dividends paid to the shareholders and tax paid to the government. The sub tracted amount represents that how the value added is created in the first place. All the expenses are summed up with the profits to get an amount which is then the representative of the generated amount by the company or in other words how the company has utilized its wealth (Cox, B., 1979). The value added calculation which is done to analyze a company’s overall performance level is somewhat similar to the calculations done to determine the national accounts with respect to the whole economy. Therefore it would be right to say that the concept of value added is not new for the accountants and financial professionals rather it do existed in the early 20th century as well. The similarly between national accounting and value added is briefly defined by Cox. He demonstrated... This paper approves that value added framework of accounting describes the current position of the company with respect to its productivity; that how much sales it has generated and where the revenues are spent, market share; which explains the growth rate of the company and also suggests the potential areas for further development, lastly, financial performance is analyzed through this substantial accounting tool, the loss/gain earned by the company including all the generated profits. At time value added is confused with the sales revenue despite of the fact that there is a marked difference between the two. This report makes a conclusion that the value added should not be misinterpreted with the sales revenue because it is the computation of the net instead of the gross production of any revenue generating institution whether it is a country, company or a factory. The importance of value added and its procedures is also emphasized by the Financial Accounting Standards Board by mentioning that the value added along with its procedures and calculations is as reliable as any other financial statement, for instance, the balance sheet. This infers that value added can be used extensively in order to make evaluations about the company performance and to make generalization about the overall industry. The famous brands Caterpillar and Komatsu can be compared with each other by calculating the valued added amount for one company and then make it a benchmark to compare the other company’s performance. The value added can also be used to identify the strong company when comparing two or mo re companies together.