FINAL EXAM Harvard Case Solution & Analysis

  1. Financial statements and Analysis

Financial statements are the records of the activities of the business that include balance sheet statement, income (profit & loss) statement and cash flows instatement. The financial statement analysis is the procedure of analyzing and evaluating the past performance of the business in order to understand the financial health of the company that results in effective decision making regarding the future of the business. Likewise, financial statement analysis is also very important in order to develop the valuation of present as well as future expected financial performance and situation of the company by evaluating and examining the past financial data. The analysis of the financial statement starts after the completion of the financial statements and it is the necessary for the decision making.

The most significant benefit that analysis of financial statements provides to the company is the identification of future expected results on the basis of the past data, as well as helps in examining the upward and downward trends of the company. Analysis of financial statements is an extremely useful tool for different users of the financial statements having different objectives regarding evaluation of the financial statements.

Additionally, the main reason of financial statements is to deliver the information related to the changes in the financial health of the company which is very important in order to make a wide range of economic decisions. It is the responsibility of the company’s management to make future decisions and plans for the company in order to make this decision they require the evaluation of the company’s performance and for this reason analysis of financial statement is very important for the management.

Since the shareholders are the owners of the company and on the continuous basis they have to take the decisions whether to sell the shares of the company or hold them. Therefore, financial statement analysis is most important as they help the shareholders in order to take decision by providing them the meaningful information.

The Financial statement analysis is also important for the creditors who are the providers of the loan to the company in order to conduct business operations. They require the analysis of financial statement in order to make a decision whether to extend the loan payment duration for the company and demand higher interest rates from the company. Without the analysis of financial statement, it is not possible for any company to make efficient decisions that result in long-term profitability and growth of the company.

  • 2.     Asset Valuation

An Asset is any object that has a monetary value be it a tangible asset or an intangible asset; it has the potential to create monetary value in the future. Asset valuation is the way of assessing the worth and value of an asset that helps the company in deciding its future. In addition to this, asset valuation techniques are executed either before the sale or purchase of an asset.

The valuation of an asset is very important, especially when a business or a company is making an investment in a particular asset. This will help in making sure that the right price of an asset is being paid. However, this is the most significant reason that determines the importance of using asset valuation in finance.

Furthermore, when the two firms are deciding to merge together or form an acquisition (purchase of one firm by another), it is then decided between the two firms to set the valuation of an asset. This will help in determining the worth or value of the company that is included in a financial purchase or merger. Assessing the value of a few assets is easier as compared to the other assets and the uncertainty associated with the expected value is different for each asset but the basic principle of valuation remains the same for all the assets.

When the company is making an investment with the purpose of generating an asset, then the value of that asset is analyzed to determine whether the  investment is worthwhile or not as well as in assessing the future earning potential of an asset....................

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