- May 27, 2020
COMPARISON OF FINANCIAL REPORTING TENDENCIES
Comparison of Financial Reporting Tendencies 1
COMPARISONOF FINANCIAL REPORTING TENDENCIES
Accountingprinciples are rules and regulations that are used by accountants andauditors to analyze and construct financial statements and auditedreports for public and private companies (Leung 2011). This report isgoing to take into consideration the level of conservativeness andcompleteness of the reported financial statements of Ralph Lauren andThe Hub Group. The report only deals with the analysis of the mostrecent fiscal year reports that are complete and therefore the year2015 would be taken as the basis year for the research. The auditedreports usually give an emphasis on the income statement, thestatement of financial position and the cash flow statement. Thesethree financial statements were used to make a conclusion on whichcompany is more conservative and which one is not. Three subtopicsare used to highlight the distinct differences between the financialreporting procedures between the two companies. Ralph Lauren (RL) isa design and Clothesline Company that is doing so well in the fashionindustry. On the other hand, The Hub Group is a technologicalcompany. This difference in operation between the two companies callsfor different ways of tackling financial reporting and more so thetype of items expected to be included in the financial statements(NASDAQ2016).
Theincome statement is used to arrive at the net profit after deductingthe expenses from the overall revenue gained from the sales ofproducts and other trading activities of the company. According toNASDAQ, Ralph Lauren recorded a total revenue of U.S $ 7620000 at theend of the 2015 financial year. The company evaluates its yearlyincome statement to provide a trend of the healthiness of theirfinancial performance.
TheHub Group and Ralph Lauren have used the same elements in calculatingtheir income in their respective income statements. Also, the itemsbeing considered in the two income statements have been written ingeneral terms this implies that the administrative expenses of thetwo companies are not specifically identified as electrical costs, orrental expenses since they are generally combined and reported asadministrative expenses. This shows that both companies areconservative about releasing specific information about theirexpenses (NASDAQ2016). The information on the source of income is also withheld withthe audited reports using general terms such as non-recurring items,expense items. This shows that the companies are not willing todisclose information about certain expenses and the specific sourcesof income (Leung 2011).
Theramification of using a conservative approach to the analysis,construction and reporting of financial statements is that thecompany can safeguard its secrets and sensitive information from therivals who may use it to gain a competitive advantage. Besides, itgives very limited information to the stakeholders, investor and thegeneral public about the affairs of the company. People interested ininvesting in these type of companies may shy away from doing so sincemost of the information are concealed.
Thestatement indicating the financial position of an organization isknown as the balance sheet, and it is used to record the net worth ofa company or enterprise. It provides net worth assets, liabilitiesand capital breakdown of a firm`s net worth (Leung 2011). NASDAQprovide the balance sheet information on the two firms undercomparison that is The Hub Group and Ralph Lauren. An analysis of thebalance sheet of The Hub group indicates that the total assets forthe year ending 31stDecember 2015 were U. S $ 220,379,000 whereas the liabilities totaledto U.S $ 98671000. The stockholders` equity for the Hub group was atU.S $ 121708000. This information obtained is comprehensive since allthe balance sheet items have been included. However, specificinformation on the type of assets, liabilities and capital items havenot been provided on the NASDAQ website. This shows that publiclyaudited reports do not provide in-depth information that is useful tothe investors, shareholders and the public. Trading with such firmscauses a lot of speculation since market information is limited. Alook at Ralph Lauren’s balance sheet statement at the first quarterof the year 2015, indicates that the company held assets worth U.S $6213000. The balance sheet liabilities total to U. S $ 2469000. Thecapital for Ralph Lauren as at 28thMarch 2015 was U. S $ 3744000. The Ralph Lauren uses the same type ofstatement items used by the Hub Group. Both companies areconservative about revealing information about their assets andliabilities. Their audit reports, therefore, lack crucial details onthe asset values (NASDAQ2016).
Thecash flow statement
Accordingto NASDAQ Ralph Lauren reported cash flows for years 2013, 2014, 2015and February 2016. The reports from cash flow statements provideinformation about the changes in cash held by the firm. Thestatements have all the required information on cash flow items thatarrive as the final details about cash flow status of Ralph Lauren.The specific details about each cash flow item are however notreported in the statements but rather provided in the notes andnarrations of the financial audit report. This is available to theshareholders and company directors once the auditor in charge hascompleted their work, but the information is not readily accessibleto the general public. The company is conservative about revealingthe sources of cash and the investments they have made to gain theoperations and investment activities (NASDAQ2016).
Thesame observation is made when analysis of The Hub Group cash flowstatements for the year ended 2015 was done. The company providesgeneral information about their cash flow items, but the specificdetails are only provided in full comprehensive audit report createdby the auditor in charge. The Hub provides information about thechanges in accounts receivable and payable but does not specifydetails of the real debtors or creditors. Such information iswithheld for the benefit of the company. This, therefore, means thatthe two companies are reluctant to provide all their financialinformation to the general public. This is the most common wayemployed by companies to shield themselves from criticism from rivalsand protect most of their financial information from maliciouspeople. The company is also able to safeguard information about theiresteemed suppliers and have their identity concealed this practiceis common when company secrets contribute to their market supremacyand monopoly. Investment activities are not specified in the cashflow statements. The investment activities mostly include theacquisition of property and other firms as subsidiaries. Unless acompany is publicly owned this information does not have to beincluded in the financials of companies. Both companies strictlyapply GAAP in their reports (NASDAQ2016).
Boththe Ralph Lauren and the Hub group provide their information onfinancial ratios. For companies that are listed on a stock exchange,it is usually prudent to inform investors about the market trends bypresenting to them information on the current stock prices and priceearnings ratios. This information is particularly relevant toinvestors since it is able them to speculate based on the informationthat they have. Financial ratios are used to rank companies as eithergrowth stock companies or value stock companies. These companies caninfluence the minds of investors using the information which needs tobe availed every time a financial report is conducted (Leung 2011).An analysis of the Hub Group provides its financial ratios withoutbias unlike the procedure taken in the other financial statements.These ratios include current ratio, quick ratio, earnings per shareand the price earnings ratio. These ratios are very crucial tostockbrokers and their clients. Since speculation in the stock marketoccurs on a daily basis, such information is mandatory. The Hub Groupis committed to providing the right information by giving correctratios enabling investors to arbitrage and trade wisely(NASDAQ2016).
TheRalph Lauren Company also provides the right information about theirfinancial ratios. This information includes leverage ratios such ascurrent ratio, price earnings ratio, and quick ratio. These ratiosrank the firm as either value stock or growth stock. The value stockcompanies have lower price-earnings ratio this means that theirmarket value is low and so are their net earnings for that year(NASDAQ2016). For a growth stock company the price-earnings ratio is veryhigh hence the market value of the firm is also very high. Thisimplies that the investors and stockholders in a value stock companythe investors and shareholders are likely to earn little dividendswhile for the growth stock investors earn higher dividend since thevalue of their stock is attractive and huge (Leung 2011). The twocompanies are not conservative about providing the information abouttheir stock prices and its performance this helps investors to getthe necessary information needed to trade on the stock.
Thisreport has shown that firms may not provide all the information onthe balance sheet, income statement, or cash flow statement but woulddo so in the financial ratios as this ensures investor confidence inthe information provided. Both The Hub Group and Ralph Lauren have toprovide this information for the purpose of keeping the investorsinformed. Both of the companies are conservative about disclosingcrucial financial details. Moreover, they all apply the GAAP in theirfinancial reports as required by the reporting bodies.
Leung, D.(2011). InsideAccounting: The Sociology of Financial Reporting and Auditing.Farnham, Surrey: Gower.
NASDAQ.(2016). RL stock quote – Ralph Lauren Corporation Common Stock price- NASDAQ.com. Available at http://www.nasdaq.com/symbol/rl [AccessedNov.18, 2016]
NASDAQ.(2016). HUBG stock quote – Hub Group, Inc. Class A Common Stock price- NASDAQ.com. Available at http://www.nasdaq.com/symbol/hubg[Accessed Nov.18, 2016]