Discuss using an extended example how annual report and accounts can Essay

Discuss using an extended example how annual report and accounts can be used to analyse and - Essay Example Other than the three key statements the annual reports include- Analysis and discussion by the company management; report relating to internal control and report stating the fairness and transparency of the financial statements. Under the management discussion and analysis section there is an explanation with regard to any significant changes in the current year’s performance over the previous years (Warren, et al., 2008, p.785). In the financial statements published by Sony Corporation for the financial year ending 2010 the Sales and operating revenue of the company for the last three financial years has been shown in a comparative way. The operating income of the company for the last three years has also been compared in the form of a bar chart. This shows how this income had dipped in 2009 but recovered, albeit marginally, in the 2010 fiscal. The marginal rise in the revenue is a positive sign for the investors as it signifies that the company has managed to overcome the losses of the previous years. Various other charts relating to Free Cash flow, Capital expenditure and R&D investment have also been shown by the company. These give an idea about the investment practices of the company. Financial ratios can be computed using the financial data of the company relating to net income, sales, financial expenses, debt, equity, assets etc. Using these one can get an idea about the liquidity strength, profitability, debt position, earnings capacity of the company. This is considered to be the most effective tool in assessing the financial soundness of the company (Gibson, 2008, p.452). For the financial year 2010 Sony has prepared a Consolidated Statement of Income where it has depicted the financial data for three years- 2010, 2009 and 2008. Using the sales and net income for this three year period one can prepare the net profit margin