Analysis of Fountain Set

Here is the report that was requested by Mr. Bill Wilkinson, our lecturer of the subject, Accounting For Managers (subject code: TBS901). In this report, I will explain what I have considered to be the principal areas of judgment contained in the Annual Report 2001 of Fountain Set (Holdings) Limited. Next, I will try to analysis and study its financial situation in 2001 base on the data provided in the Annual Report by using some ratio analysis, measure and comment upon profitability, asset utilization, liquidity, and debt utilization. Finally, I will provide a short overall analysis for shareholders on whether they should maintain, increase or reduce their investment.

I would like to use this opportunity to thank you Mr Alpha Choy, the financial reporter of Next Media, who gave me advice and financial data for completing this report. Also, I would like to express my thanks to Mr Bill Wilkinson the lecturer of Master of Business Administration of University of Wollongong, for providing their professional advice. Hope this report can help you understand more about the financial policy & situation of Fountain Set (Holdings) Limited.

Fountain Set (Holdings) Limited is an organization providing piece goods dyeing and fabric finishing services to the textile industry. In this report, we will try to study and analyze the Year 2001 financial situation of Fountain Set. As the financial statements published in the annual report have involved several area of accounting judgment of the organization, the following section will explain and describe what kind of judgment that Fountain Set has involved in the preparation of these statements.

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Besides, we will try to use Ratio analysis for studying the financial status of Fountain Set by comparing the ratio result of Year 2000 and 2001. After several comparisons, we found that Fountain Set is a healthy organization. In Year 2001, the weakness in the US economy was a big affection on the Fountain Set business. Although it had facing a difficult financial situation, it still can have a good financial performance in Year 2001. Therefore, refer to our analysis, we would like to highly recommend Fountain Set (Holdings) Limited to the shareholders or investors.

Introduction

When we try to analysis the financial situation of an organization base on the data provided by its own Annual Report, we should not just grant on this information and expect that the data included is prepared on a purely objective basis. As the author of the Annual Report has set several principal areas of judgment before preparing the report, we must find out what principal areas of judgment contained in the report and use some ratio analysis for measuring & commenting upon profitability, asset utilization, liquidity & debt utilization.

In order to analysis and study the financial situation of Fountain Set (Holdings) Limited for the year 2001, we will try to use the methods mentioned in the above and finally we will make recommendation base on the our finding to the shareholders on whether they should maintain, increase or reduce their investment. Fountain Set (Holdings) Limited was setup in 1969 providing piece goods dyeing and fabric finishing services to the textile industry. Fountain Set currently has several lines of business including the original dyeing and finishing operations, yarn trading, garment sales, and knitting services. Well over half the company's customers are located in Hong Kong, more than a quarter in Asia, and the remainder split between the United State of America and Europe. (www.quamnet.com, 5 August 2002)

Principal Area of Judgment Some unsophisticated readers may think that, as the information provided from annual report has been audited by external audit, information should be subjective and corrective. Actually speaking, there is some amount of judgment involved in the preparation of such statements. The decision that an organization made between these different accounting practices could have a significant impact on the balance-sheet valuation of its assets and liabilities and upon its report profit.

Therefore reader should attentively study the annual report. The principal areas of such judgment are related to fixed assets, stocks, debtors, creditors, and goodwill. In the following sections, we will try to identify these judgments fro m the information provided by Fountain Set annual report. Historic-cost basis of accounting According to the Accounting policies of Fountain Set, the financial statements have been prepared under the historical cost convention, as modified for the revaluation of certain properties.

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