Financial Reporting on the Internet_AL Marai
Financial Reporting on the Internet (Case study: AL Marai)
Traditionally, most companies followed a shareholder-centric business model. However, with the evolution of corporate social responsibility, many companies are now accepting that considering all stakeholders makes better long-term business sense (Mainardes et al. 2012). Stakeholders play a critical role in a business’s operations and performance. Generally, stakeholders can be classified as internal or external (Mainardes et al. 2012). Understanding the relationship between each stakeholder and Al Marai can help it improve its performance through strategic decision-making.
Employees, shareholders, managers, and the board of directors are Al Marai’s main internal stakeholders. Employees are invested in a company’s performance to ensure they retain their jobs. Shareholders are focused on a business’s strong performance to maximize their ROI (Mainardes et al. 2012). Al Marai highlights this by the company’s acknowledgment of its dedication to maximizing shareholder returns. Managers are concerned with how individual business elements or departments operate. Their fundamental priorities are autonomy, influence over teams, and support from the executives to undertake their roles. The board of directors is interested in optimizing a company’s profit and achieving a return for investors. They are therefore more concerned about the efficiency of business operations.
External stakeholders are parties who are not directly working with a company but the company’s actions and outcomes affect them to some extent. Suppliers, creditors, and public groups are common external stakeholders (Mainardes et al. 2012). They are invested in the performance of a company as it affects them as well. In Al Marai, this is highlighted by their recognition by the company in its audit report.
Profit margins are key financial indicators widely used in the contemporary world. Between 2020 and 2021, Al Marai’s profits declined from SAR1, 935, 556, 000 to SAR1, 579, 436,000. This translates to a 0.1% decline in profits. To be a prosperous, attractive, efficient, and promising development, a business must earn a profit (Diana & Maria 2018). In a dynamic economic environment faced with multiple changes, maximizing profitability or the ability to generate a profit as a measure of performance is the fundamental goal of an economic entity’s operations (Rahiminezhad & Mokhatab, 2021). Essentially, profitability rates assess the results obtained concerning a company’s operations with economic means or financial means. Between 2020 and 2021, Al Marai’s performance declined.
Revenue changes are also a key financial performance metric used in the modern world. Between 2020 and 2021, Al Marai’s revenue declined from SAR 15,356,948, 000 to SAR15,849,720, 000. This indicates that Al Malai’s revenue declined by 3.2%. This broke down the trend the company had recorded in the 2019-2020 financial year. Between 2019 and 2020, Al Marai’s revenue increased from SAR14, 351,000 to SAR15, 357, 000.
Cashflows are also a key financial performance metric. It measures the difference between cash inflow and cash outflow net of the accounting measures and uncertainty and risk. From 2019 to 2021, Al Marai’s cash flow has increased consistently from SAR2, 601, 000 in 2019, SAR2,830,000 in 2020 to SAR3,101,000 in 2021. This indicates that money inflows at Al Marai have increased consistently over the past three years highlighting increased business performance.
IAS 16 Property, plant, and equipment identifies and describes two different accounting models for tangible non-current assets. These methods include the cost model and the revaluation model. These models are essential for measuring cash flows generated from the asset compared to the assets’ value. Under the cost model, the asset is carried at cost less accumulated depreciation and impairment (Rafay et al. 2019). Under the revaluation model, the asset is carried at a revalued amount provided that fair value can be evaluated reliably (Rafay et al. 2019). A revalued amount is the fair value of the asset at the revaluation date less subsequent depreciation and impairment. Al Marai uses the cost model to account for depreciation. This is highlighted by the carrying of the company’s fixed assets at their historical cost less the asset’s accumulated depreciation and accumulated impairment losses.
Based on IFRS provisions, estimates are only allowed where there is a subjective measurement and a range of reasonable outcomes. Conversely, judgments encompass a ‘yes or no’ decision which can be supported by the weight of factors that support one discrete answer over the subsequent one (Rafay et al. 2019). Examples of accounting estimates in Al Marai’s financial statements include revenues from contracts accounted for by the percentage-of-completion method, and net realizable values of inventory and accounts receivable.
Contingent liabilities are typically liabilities that a company may incur based on the outcome of unprecedented events, such as a pending lawsuit (Alini 2018). Contrary to other liabilities, contingent liabilities are not accounted in a firm’s accounts and included in the balance sheet when both probable and reasonably estimable as ‘contingency’ or ‘worst case’ financial outcomes (Alini 2018). They are highlighted below the balance sheet or separately through a description of the contingent liabilities extent. While the possibility of loss is described as remote, reasonably probable, or probable, the ability to project a loss is described as not reasonably estimable, reasonably estimable, or known. It may or may not occur. For instance, the acquisition of 100% shares of Bakemart; UAE’s Bakemart FZ and Bakemart and Bahrain’s Bakemart W.L.L for an enterprise valued at SAR 95.5 million has not been recorded in the 2021 liabilities as the terms and conditions outlined in the agreement for the closures of the acquisition and determination of the date of control are yet to be determined.
The going concern principle is critical for assessing the financial position of a company. Typically, a going concern is a fundamental aspect of the generally accepted accounting principles that highlights whether a business is financially stable enough to cover its obligations and continue with its operations in the foreseeable future (Tara 2011). In case a business is presumed to be a going concern, some expenses and assets may be carried forward to the subsequent year in financial reports. For instance, Al Marai is financially stable and not a going concern. As a result, none of the expenses have been deferred to the near future.
Based on its financial statements, Al Marai uses both a Sales-basis method and a completed contract method in recognizing revenue. The sales basis method is highlighted by recording revenue at the time moment the goods or services title is transferred to the buyer. This method is appropriate as it allows accurate cash flow such that the company can determine whether cash is on hand at a given point in time. In some cases, Al Marai has used the completed-contract method. Under this model, revenues and expenses are recorded only at the end of the contract. For instance, Al Marai deferred the expense for its acquisitions to the time the terms and conditions of the agreement were met. This approach is appropriate for the company when there is unpredictability surrounding payments and uncertainty regarding a project’s completion date.
Undeniably, corporate governance encompasses rules, practices, and processes that guide and direct a company. In Al Marai, the influence of corporate governance is highlighted by the company reporting its social, economic, and environmental engagements and contributions over 2021. Al Marai’s social contribution is highlighted under the people and culture subheading. As part of their social obligation, Al Marai is committed to their employees and the community by supporting their progress and skills development within a vibrant and innovative workplace that will lead to a progressive value for the quality makers, the community, and the business. In 2021, the company had 40,213 employees, 8,651 Saudi nationals, 3,810 new hires, and 2,823 new learners. Besides, it has a disclosure and transparency policy and disclosure on its sustainability as required in corporate governance.
Vertical analysis involves listing of every line item as a percentage of a base figure within the statement (Antayed & Tayeh 2017). This allows comparison of line items on an income statement with gross sales, comparison of line items on a balance sheet with total liabilities or assets, and a cash flow statement’s vertical analysis depicts every cash inflow or outflow relative to the total cash inflows. Conversely, horizontal analysis involves a review of a company’s financial statements over numerous periods (Antayed & Tayeh 2017). It is computed as a percentage growth over the same line item in the reference year. Horizontal analysis is fundamental as it enables users to easily see growth patterns and trends. Growth patterns and trends can be used to project future performance. Al Marai can use horizontal analysis to benchmark its performance with competitors in the same industry. Conversely, the vertical analysis eases the comparison of a company’s financial statements with another and across sectors as one can see the relative proportions of account balances. For instance, Al Marai can use its profitability changes between 2020 and 2021 to compare its performance with its main competitors or the industry average. This will help it make more strategic decisions on improving performance in the future.
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Rafay, A., Yasser, F. & Khalid, Z. (2019). Revaluation of Non-Current Assets under IAS-16: Possibility of any Managerial inducement – Evidence from a South Asian Economy. DLSU Business & Economics Review, 29, 93-105.
Rahiminezhad, M. & Mokhatab, F. (2021). Financial performance measurement of supply chains: a review. International Journal of Productivity and Performance Management.
Tara, I. (2011). The Going Concern – Theory Aand Practice In The Financial Audit. Annals of Faculty of Economics, 1, 631-635.