Investing money in a stock is a risk-bearing concept and not an assumption that will generate money magically. Buying a stock is not just investing in the piece of paper, it can help to gain effective result in order to sustain in the highly competitive environment. The investors or the stockholders become an owner of the company by purchasing the representing part of a share. If the share price increases in the future converting into profit margin, then the shareholder will be treated as wealthier among the members. In opposite case, if the price ranges of the shares falls in future than the company will play poorly and the value of the share will also decrease, which will result in loss of money investment.
Apart from ascertaining the Profit Margin, Net Income and revenue of the West Pac company which is flexible in every single year, some relevant information regarding the company and its stock should be noted before investing. Such as,
● Debt to Equity Ratio
If the amount of debt is lower than its equity shows how much safe is the investing. It measures the repaying capacity of the debt obligation in the time when a company runs into the loss. Hence, the lower is the debt-equity ratio the less risky it is for the investor to invest.
● Earnings Ratio per share
It becomes easier for the investor in finding the share is overpriced or not by comparing the price of the stocks with the share per price. A well-operated company with lower earnings ratio signifies the stock of a company is running at the fair price
● Economic Moat
The competition of the product in the market attracts the investors in buying a share of that company who have more demand in the share market; it makes investment better in the long run.
A company grows gradually forever after every loss in case arises in a financial year (Bratten et al. 2016, P.289).
The company sells its shares to the investor and pays a dividend for earning a profit and enhancing the structure of the business further for the long term. When the shares exhaust and grow to its potential, the distribution of its dividend to the shareholders would be the easy process for ensuring the receipt of return on the shares from profits of the company. The distribution of a company shows the slowdown of company’s growth. It is the process of sustaining the capacity for income in long run.
Due to damage and absolute the fair value of a fixed asset decreases is known as impairment of assets. As per Asker et al. (2014, P. 348), cases arise during maintenance of financial statement of a company, the amount impaired needed to be decreased in the balance sheet by showing the loss in the statement of income. An impairment loss on expenses is determined in the meantime when the amount carried, exceeds the recoverable amount. In case of Westpac, the impairment loss of $ 80,000 is incurred, in the calculation of Westpac financial statement it should be reduced from the Net cash flow of the company ($80,000 - $48,400) is determined by adopting the cost model method. $3.16(000) is estimated the loss. The calculation could also be done in alternative methods depending on the amount debited according to the fair market value or not.
If the outcome of the impairment is small dividends for the company, the impact is bad in the growth of the company. The gain from the impaired assets is included to the impaired loss and the excess of the amount is considered as revaluation of the assets.
A company should disclose the number of changes done in the accounting statement that generally affect the current and future period of a balance sheet. According to Paynter et al. (2018, P.196), n case of uncertain activities of the business, most of the items included in a financial statement would not be calculated precisely. The determination of the accounting is based on the currently available data and information. The estimation requires Bad debts- $ 5.5, Value of assets- ($264). It is essential to estimate and prepare the financial statement; it does not show the reliability. Estimation based on outcome of the related data is calculated, if any changes occur in the revision of the statement.
Bratten, B., Causholli, M. and Khan, U., 2016. Usefulness of fair values for predicting banks’ future earnings: evidence from other comprehensive income and its components. Review of Accounting Studies, 21(1), pp.280-315.
Asker, J., Farrer-Mensa, J., and Ljungqvist, A., 2014. Corporate investment and stock market listing: a puzzle?. The Review of Financial Studies, 28(2), pp.342-390.
Bryden, P., Paracha, N. and Thuresson, P., 2016. Work Productivity Activity Impairment Loss of Patients with HER2 Metastatic Breast Cancer. A value in Health, 19(7), p.A749.
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