Corporate Financial Reporting and Taxation Essay

Corporate Financial Reporting and Taxation - Essay Example The year 2012 has been marked the company’s growth in the value of net assets. This, therefore, essay covers analysis of the company’s financial statements for the year 2012, risk of a possible corporate failure and the importance of the objectivity and integrity in the preparation of the financial statements (Financial Statement: the IP group, pp. 1-9). Return on capital employed (ROCE) – capital employed is total assets – current liabilities. Therefore, return on capital employed ratio indicates the return generated by every pound invested as capital employed. Concerning the IP group, the ROCE for the year was 15.5%. The interpretation of the ratio goes that in 2012, 15.5% of the company’s net profit was generated by the company’s capital employed. This ratio can also be used by investors to determine the required rate of return on investments. Generally, a lower return on capital employed than the cost of capital is not preferable to investors (Duncan Hughes, Asset management in theory and practice, pp. 42-44). Net profit margin – the ratio indicates a company’s financial health after meeting the cost of sales and the operating expenses. It also indicates the company’s ability to pay for future operating costs. Concerning the IP group, the ratio for 2012 was 77.5%. This means that in the year 2012, 77.5% % of the total revenue were net profit, whereas, the remaining 22.5% of sales were consumed by the company’s operating costs. From this analysis, it can be concluded that the level of operational efficiency for IP group was high due to the effective cost management strategy. (Sarngadharan M. & Kumar R. S. Financial analysis for management decisions, pp. 121-135). Net profit margin before tax – this ratio shows how well a company manages its operating expenses. The higher the ratio, the lower the operating expenses of a company. The opposite is true.