Article
focus is on financial condition of chemical companies. Late-reporting companies
posted
high growth rate of profit because of substantial increase in selling price.
Selling price plays important role in Financial Statements. Here chemical firms
despite of increase in cost of raw materials showed increase in profits.The regulatory
agencies around the world have set maximum time limits within which public
companies are required to issue audited financial statements to shareholders
and other external users and file them with concerned regulatory bodies.Public companies as to provide full
information to investors regarding their operations, chemical firms had given
only the financial data but not the risk associated with their product. In case
of chemical firms they have to provide details to Environmental Protection
Agency as their operations are directly related to environment. In this case
chemical firms had not fulfilled the requirement. Investors should have full
information about company’s product uses, their hazards etc.
Evaluation –
Chemical
companies reporting earnings in the last two weeks posted mostly strong profit
gains because of high selling prices. The companies showed substantial increase
in net earnings and on sales despite of decrease in volume and increase in cost
of raw materials because of increase in selling price, resulting in strong
profit growth.Selling price is directly related to all the financial statements
sales in Income Statement, cash and accounts receivable in Balance sheet, in
cash flow tells us inflows of cash. Increase in selling price increase sales in
turn Gross Profit, taking no changes in operating expenses. Selling Price plays
a major role in the formation of financial statements in turn in analyzing
statements.
There are basically two strategies to
increase Gross Profit by increasing selling price per unit or by reducing Cost
of Goods Sold. This article tells us even with the
increase in the cost of raw materials and increase in Selling Price Company
showed high profit growth. This can be done, if companies analyses the market
and do pricing increasing selling price as per the demand of their product or
by not reporting until companies saw opportunity to show strong profit growth
to investors. In this case companies waited for the increase in selling price
and reported late showing substantial profit growth.
Key insight, I think is price signaling
(Competitors following one company to fix price).No company tried to go with
the approach of cost leadership, through economics of scale cutting down the
price means competing on the basis of price. Also, not only the financial
statements timely reporting and full knowledge of operations and use of the
product of the company plays important role for investors in decision making.
Timely
information plays a major role in decision making for the investors. Investors
need reliable, relevant and timely information. They expect a transparency from
management as per the standards and regulations. Investors analyze the
information provided and this is the only source to them to make investment
decisions. The provision of timely information in corporate report assumes more
importance since other non-financial statement sources forecasts are not well
developed.
Chemical Industry has to work under the
regulations of Environmental Protection Agency (EPA). As there product is
directly related to human health and environment EPA Audit Project was broadly
in favor to protect environment and this audit encourage chemical Industry to
be in compliance with pollution prevention audits of their operations. EPA wants
to increase awareness and use of its Audit Policy and encourage
self-disclosures of violations of federal environmental regulations. The
information provided to investors by chemical industries are not fulfilling the
criteria of Environmental Protection Agency, companies are giving financial
data but not about the risk associated with their firms operations, companies
should provide all information related to them to investors also on production
and use. Industries replied by saying to EPA, that more frequent reporting was
unnecessary because production volume does not change quickly. However,
comparing reporting cycles shows that there are frequent and large changes in
annual production volume as well as large numbers of new chemicals entering and
exiting the market. Chemical industries
are providing information almost timely to investors but
not to public. Decisions done on chemical risk management requires that the EPA
and investors should have complete data on chemical hazards as well as timely
information on production, use, and exposures. US department of Energy released
recommendations for natural gas companies should publicly disclose full
information of the chemicals they use in their reports along with financial
statements. But companies are claiming by saying that these chemicals are their
proprietary.They
also recommend using a life-cycle approach to managing and tracking wastewater
to prevent pollution. Extensive testing, monitoring, and disclosure of air
pollution associated with gas development.Further study of the climate change
impacts posed by emissions of the potent greenhouse gas methane. Basically
chemical industry is not only about providing financial data they also have to
work under the regulations of environmental agencies, should provide timely and
full disclosure of their operations, effects to the environment and human
health to investors.
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