Best Buy Limited Financial Statements Essay

Introduction

Financial Statements are useful in providing information to both internal and external users. This paper seeks to elaborate the uses of each of the major statements contained in the annual report.

The company chosen for this analysis is Best Buy Limited. This company is listed in the New York Stock Exchange. Best Buy is in the business of selling domestic electronics. The analysis is performed on the financial statements for the year 2009.

Questions

• The Income Statement reveals the company’s revenues and expenses for the past three years. There are comparative figures, which show the changes over the three years. The company experienced a drop in revenue in 2007 by 30%. This is in comparison to the 2007 figure. This could have been due to the effects of the Global Financial Crisis. However, in 2009, Revenue increased by 25%, a sign that the company was recovering (Gallagher & Timothy, 2009).
  The Income statement also reveals the Gross Profit Margin. It stood at 24% in 2009. This was a slight improvement from the previous years. One is able to compute the Net Profit Margin from the Income Statement. This shows how well the company is managing its operating expenses.
• The balance Sheet reveals the Company’s level of liquidity. The relationship between current assets and current liabilities is an indicator of how well the company can manage its short-term finances. The Current and Quick ratios are both constant over the years at 3.1 and 2.6. This shows that the company maintains an average level of both current assets and liabilities.
  The Debt to Asset ratio is also computed from the Balance Sheet. It indicates the relationship between the company’s assets and debts. Best Buy has more assets in relation to its long-term debts. This company relies heavily on equity financing. Debt is only 20% of its capital structure.
  The short-term liabilities are composed majorly of accounts payable. This means that the company depends on supplier credit for most of its working capital needs. This is typical of companies in this industry. Best Buy has an overdraft. It consists of 14% of its current liabilities. Other information about company financing could be obtained from management reports (Gallagher & Timothy, 2009).
• The company’s management prepare the financial statements. This is because they are involved in the day-to-day running of Best Buy. They have a responsibility to communicate to the shareholders through the Financial Statements. Thus, Best Buy’s management determines the content of the financial statements. However, the directors issue the Financial Statements. Directors have a duty to oversee management’s activities. They express this by taking responsibility for the financial statements which management prepares (Weetman, 2007).
• The Financial Statements contain some notes. These notes explain the figures in the Financial Statements. The accounting policies adopted are clarified in the notes. Any changes in the Financial Statement items over the year are explained in the notes. Items such as Employee Benefits and Financial Instruments are elaborated in detail.
• All financial statements are audited before being released to external users. An independent auditor appointed by the shareholders through the directors does this. The auditor checks the financial statements and issues a report as to whether they are materially misstated (Weetman, 2007). This increases the credibility of the statements. Compliance with Financial Reporting Standards and GAAP is checked. The fact that the auditor is independent reduces likelihood of colluding with management to mislead external users of the statements.

References

Gallagher, & Timothy, J. (2009). Financial Management: Principles and Practice. Chicago: Wiley.

Weetman, P. (2007). Financial and Management Accounting: An Introduction. Chicago: Prentice Hall.