Ethics Challenge – Reporting decision | Financial Statement Analysis

Review the data for Case 1-7, Ethics Challenge, on page 63. Then, answer the following questions:

1. Why do you think the CEO decided to report these 4 ratios instead of the 11 ratios that you prepared?

2. Comment on the possible consequences of the CEO’s reporting decision.

Among the eleven ratios prepared, the CEO of the company decided to present and report only four of the ratios in the press conference he was going to hold because of the four ratios measures and suggests the various parameters like whether the company is in profit or not (profitability), liquidity as well as the efficiency of the company. The four ratios that the CEO is going to report in the press conference are as follow:

 

Ratios

200620052004
Current Ratio2.92.72.4
Sales to Property, Plant & Equipment3.83.63.3
Sales trend percent147%135%100%
Selling expense to net sales10.1%14%15.6%

The CEO of the company has not reported the other seven ratios like acid-test ratios, Total asset turnover ratio, profit margin, ROA, ROE, Accounts receivable turnover ratio, Merchandise inventory turnover ratio because these ratios reflect that the company is decreasing trend which will help the company to stimulate their stock prices, as well as investors, might feel secured to invest in the stock of the company.

 

The decision of CEO regarding reporting only four ratios can result in bad consequences for the company. The company must be transparent to its stakeholders about the real situation of the company rather than hiding the information as they are people who are directly affected and can also affect the operation of the company (Ryaner, 2017). If the stakeholders become aware of the practices of the company then it will crease the credibility and reputation of the company.

Along with this, the customers may not likely purchase goods and services of the company who follows unethical practices. This will ultimately hamper the profitability of the firm. Further, the investors may not feel secure to invest in the company who are not even confident to show their real financial position and the company may not be able to attract its potential investors.

 

References

Ryaner, J. (2017, July 13). Undistinguished Assignment Assistance From Our Business Decisions Using Financial Ratios . Retrieved from Expersts Mind: http://www.expertsminds.com/content/sample-paper/business-decisions-using-financial-ratios-assignment-help-5749.html

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