DRAGONFLY CORPORATION Case Study Solution
ACCOUNTING:
Accounting is an art to collect interpret and summarize accounting information to find out the financial results of the business. Accounting is necessary to report the financial information to the users of financial statements. Accounting made the analysis of the firm easier and interpretive. Applying accurate accounting tools help the users to make practical understanding of the company. Creating visions about the enterprise's information and taking effective decisions on the evaluative analysis of financial statements.
TYPES OF ACCOUNTING:
In businesses, there are two types of accounting systems are primarily applied, i.e.
Financial accounting.
Cost accounting
Financial accounting:
Financial accounting comprises of core sets of principles that are used by the accountants to report on individual figures. These reports are generated to provide information about the company to stakeholders, i.e. shareholders of the company, tax authorities, potential financial investors these reports also shows the policy and procedures adopted in making those statements.
Managerial accounting:
Managerial accounting is used by the company and done by the accountants for internal use. It does not follow particular sets of instruction and accounting is done by the managers on the terms they find appropriate. These are the statements used by the managers to make necessary financial decisions. These reports comprise of budgets and forecasts to measure the performance of the company and additional figures to define the effects of different variables to company's performance.
APPROPRIATE METHOD OF ACCOUNTING FOR DRAGONFLY CORPORATION:
They should use the cash basis of financial accounting and appropriate managerial accounting to reflect their financial results and to expect about growth plans.
Furthermore, they should use retail accounting methods because they are operating retail stores and their inventory management is also poor.
They should use COST ACCOUNTING i.e. applying appropriate inventory valuation methods and concepts that would restore their mismanagement in inventory handling practices in the long run. Pileup obsolete inventory only adds to cost. Storage cost. By applying active inventory management principles, they would get rid of from that additional cost and it would help them to save cost for future.
BASIC ACCOUNTING PRINCIPLES:
Some principles in applying accounting are basic and widely used by the companies; these are standardized principles employed by the companies in applying accounting concepts effectively. Those principles are:
The principle of consistency:
The principles and approaches used by the corporation for portraying company's performance should be applied consistently for correct accounting treatments. Bringing uniformity is necessary.
Economic entity principle:
The transactions of the business and the owner should keep separated from each other.
Full disclosure:
Accounting records and all the transactions that have incurred during the period must be reported at their fullest without any concealment.
Reliability principle:
The transactions that are proved by the resources are only recorded.
Going concern:
If the owners foresee the bright future of the business only then, the transactions are accounted for on that basis.
COMPONENTS OF FINANCIAL STATEMENTS:
The basic elements of financial statements are:
Balance sheet, income statement, cash flow statements and statement of changes in equity.
Each of the four components carries enormous importance while analyzing financial statements. The information provided by these components helps in the decision-making process and provides an opportunity for the investors to take investment decisions.
By converting the financial data into usable information, we can interpret financial performance. Company's current performance can be used to project future results. The whole range of comparative financial statements can be used to evaluate financial statements such as horizontal and vertical analysis of financial statements. Horizontal analysis can be used to determine the dynamics of the company over the years. Vertical analysis can also be used to evaluate financial information. In the vertical analysis, we ca evaluate financial statement structure, how each and every component is interrelated and contributed percentages of the figures based on one number for instance sales.
Ratios analysis can also be used by the company to evaluate the financial performance of the enterprise. Several sets of ratios are available to the industry to determine the profitability and liquidity and related efficiency of the company. How much the company is secure can be identified by the balance sheet of the enterprise. The efficiency of the company's performance can be determined by income statement of the company. How much liquid the company is can be fixed by the declaration of cash flows. By available information and projected figures, financial viability is ensured.
DRAGONFLY CORPORATION Harvard Case Solution & Analysis
ANALYSIS OF FINANCIAL STATEMENTS:
From the following analysis, it seems that the financial health of Dragonfly Corporation illustrates the negative flow from since its start of operations because the burden of lease payments of the particular rents was not allowing to adjust the net earnings of the store over time. Also, it would be unable the Janet and Thompson to manage the store facilities properly because of the increasing amount of operating expenses per year in addition to the rents being paid accordingly. On the other side, the store consistently increased its sales by 6.3% per year, which was based on the compound annual growth rate of the store for long-term. The operating expenses were directly proportional to the level of sales being generated. In addition to that, the net income was continuously decreased over the period because the expenses in addition to rents were related to the generated sales. During the year of 2010, operating expenses by 14,915 and showed minimum net loss as compared to the previous year, but it can be determined that if such reduction would take place at the sudden period that it would be said that the company would at least earn net profits in the next five years of the projection...............
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