Course: Financial Accounting Decisions

EMBA 530

Group Research Assignment (%30 Marks)

Note:
Group Research Assignment to uploaded on Moodle or
email it to me at the following Email:
Mzuriqat@fbsu.edu.sa
(The Group should not exceed 6 students). Deadline to
submit the Group Research Assignment is Friday,
November 18, 2022.

Group Names:
Students' Names Students' ID Numbers

Answer the following questions by using the information given in the article “The
Role of Financial Information in the decision Making Process”:

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Question 1: Summarize the article in your own words showing the research
problem, method of analysis, findings and conclusion.
Question 2: How financial information helps in the decision making process?
Question 3: Explain the primary tools of financial statements analysis, given in the
study.
Question 4: Explain the role of cash flow statement in the decision making process
of external users.
Answer Question 1:
Research problem:
Having good information is essential in the decision-making process. The research
problem appears that a large number of this information is from accounting
information systems and from financial statements that are supposed to give a true
picture of the reality of the company. Failure to ensure the accuracy of the
accounting data will affect the decision-making process. There is also another
problem that lies in the correct reading of the financial statements by decision
makers to ensure the quality of performance.
Method of analysis:
The data sources used in this research are secondary data. Various analyzes were
used to reach the results and to arrive at a conclusion indicating that inductive
methods were used. Apart from analysis and extrapolation, the method of
classification according to a certain standard data classification is also used in this
paper. Also, the importance of the main tools of financial accounting in making
decisions was compared. The financial ratios, methods of calculating them and their
role in decision-making were also compared.
findings and conclusion:
Financial accounting whose final products are the financial statements. Cost
accounting and management accounting ensure different information for internal
users, and financial accounting ensures the synthetic and quality information
necessary for the prior reporting of financial statements to external users. Financial
accounting is also geared towards internal users.
The most important financial statements that we should consider when examining
the quality of the entire business and making a decision for the future:
The balance sheet is the primary financial statement that represents a company's

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financial position and is the basis for estimating the security of the business. The
income statement represents the performance of a company for a certain period of
time, and the cash flow statement contains information about cash receipts and cash
expenditures as well as about the difference between them, i.e. cash flow.
The statement of changes in owner's equity shows all transactions that indicate profit
or loss for a certain period of time.
Structured financial statements are the basis for vertical analysis that allows the
horizon to enter the structure of financial statements. The structure of financial
statements is very important in the context of business quality.
By analyzing the financial statements, we learn about the quality of the business.
We have many types of ratios depending on the type of decisions we want to make
or which sector of the quality of work we want to take into account. As a result we
distinguish several groups of
Financial ratios: liquidity ratios - financial leverage ratios - activity ratios - economy
ratios - profitability ratios - investment ratios.
Besides financial ratios based on balance sheet and profit and loss account, financial
ratios based on cash flow statement are of great importance.
Conclusion:
An accounting information system provides a complete set of information to internal
and external users.
Balance sheet is used in checking business security and efficiency on the basis of
profit and loss account. We need to check other statements, such as the cash flow
statement, to get a clearer picture.
We use financial ratios in the context of measuring business quality. Different ratio
values determine different levels of business quality. By determining the quality of
the current business.
As a final result, we can conclude that financial information can be very useful in
estimating the quality of current business and ensuring continued success.

Answer Question 2:
Analyzing financial data and transforming it into usable information for measuring
business quality through various analytical techniques is very important for good
governance. The analysis of financial statements that precedes the management
process precedes the planning process, which is a component of the management
process. Planning is very important for good management. A good financial plan

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should take into account the strengths and weaknesses of all businesses. The task of
analyzing the financial statements is to identify the good characteristics of the
company so that we can use most of these advantages, but also to identify the
weaknesses of the company in order to take corrective action. For this reason, we
can say that company management is the most important user of financial statement
analysis.
The process of analyzing financial statements, such as horizontal analysis and
vertical analysis is considered important in the decision-making process.
By analyzing the financial statements, we learn about the quality of the business, but
the analysis questions are not resolved through the procedures of horizontal and
vertical analysis of the balance sheet, profit and loss account and cash flow
statement. In the context of measuring business quality on the basis of financial
statements, the most important are the various financial ratios made up of the basic
financial statements, the calculation of which is necessary to assist the decision
Maker.
Answer Question 3:
The basic tools for analyzing the financial statements included in the study are:
1- The balance sheet is the basic financial statement that represents the financial
position of the company and is the basis for estimating the security of the business.
The basic elements of a balance sheet are assets, liabilities, and equity. The structure
of assets, liabilities and equity is particularly important, along with the correlation
and interdependence of assets, liabilities and capital. In the context of business
quality, besides security, business efficiency is also very important. The balance
sheet represents the financial position at a particular moment.
2-Income statement: represents the company's performance for a specific period of
time. The basic elements of this statement are: income and expenses and their

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difference, which can be a profit or a loss. It is not unusual for a company according
to the profit and loss account to have a successful business, business with profit, but
at the same time it has problems with the fulfillment of current obligations. It is
possible because revenue and expenses are accounting categories and oftentimes
they can be distinguished from cash receipts and cash expenditures. Accordingly,
while measuring business performance.
3- Cash flow statement and statement of changes in owner's equity as well. The cash
flow statement contains information about cash receipts and cash expenditures, as
well as the difference between them.
4-Statement of changes in the owner's equity all transactions that indicate profit or
loss for a certain period of time.
5- We have many types of ratios depending on the type of decisions we want to make
or which sector of the quality of work we want to take into account, can help with
the decision.
Answer Question 4:
The cash flow statement provides the user with information about the cash receipts
and cash payments of the company during the accounting period. While the sources
of cash come from many different assets, such as customer payments, loans, asset
sales and equity, the ways in which a company uses cash most likely are directly due
to costs. For example, purchasing equipment, paying bills and payroll.
Knowing how a company manages its money is useful to external users of the
financial statement, who are not privy to the company's day-to-day operations. In
other words, the company may report net income period after period, but this does
not necessarily mean that the company is trading in cash.
And if the company has cash flow problems, there's a good chance the company
won't be able to give external users what they want: their return on investment.

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Besides potential investors, potential lenders are very interested in whether or not
the company is under cash management. Lenders want to make sure that the
company can pay off both the principal portion of any loan as well as any interest
the lender charges for using the money.
It also shows an assessment of the company's ability to meet its obligations when
their due date and the company's ability to recover its debts.