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As Beacon Company’s controller, you are responsible for informing the board of directors about its financial activities. At the board meeting, you present the following information. After the meeting, the company’s CEO holds a press conference with analysts in which she mentions the following ratios. Required: Why do you think the CEO decided to report 4 ratios instead of the 11 prepared? Comment on the possible consequences of the CEO’s reporting of the ratios selected.

Paper For Above instruction

In financial communication, the selection of ratios to present to stakeholders, such as the board of directors and external analysts, plays a crucial role in shaping perceptions of a company's financial health and performance. The beacon company’s CEO's decision to report only four ratios out of the initial eleven prepared reflects strategic choices aimed at emphasizing certain aspects of the company's financial position and managing external perceptions.

One primary reason for reporting only a subset of ratios is the desire to focus the audience's attention on key indicators that highlight the company's strengths, such as profitability, liquidity, or efficiency. Simplifying the information ensures clearer communication and reduces confusion among stakeholders unfamiliar with complex financial metrics. For instance, ratios like Return on Assets (ROA), Current Ratio, Gross Margin, and Operating Margin are often considered core indicators, providing a holistic view of operational efficiency, liquidity, and profitability. By selecting these, the CEO directs the analysts’ and shareholders’ focus towards areas that support the company's positive narrative or strategic goals.

Additionally, the CEO may omit certain ratios that could reveal less favorable aspects of the company's financial health. For example, ratios indicating high debt levels, declining cash flows, or declining asset turnover might be excluded to avoid raising concerns or negative perceptions. This selective reporting aligns with the concept of "window dressing," where information is presented in a manner that accentuates desirable aspects to influence external perceptions positively.

However, selectively reporting only certain ratios can have significant consequences. While it simplifies the message, it risks providing an incomplete or potentially misleading picture. Stakeholders may question the transparency and integrity of the company's disclosures if they perceive that material information has been omitted. This could lead to mistrust, especially if subsequent detailed analyses reveal discrepancies or adverse trends not previously disclosed.

Furthermore, focusing solely on positive or favorable ratios might inflate perceptions of the company's performance, creating unrealistic expectations. In the worst cases, such selective reporting could attract regulatory scrutiny or damage the company's reputation if uncovered, especially if it appears an intentional effort to conceal problematic financial aspects.

In conclusion, the CEO's decision to report only four ratios out of the original eleven appears motivated by strategic communication goals, focusing on the most flattering indicators. While this approach simplifies messaging and emphasizes strengths, it carries risks of perceived bias and reduced transparency. Companies must balance the need for strategic communication with ethical and regulatory obligations for full disclosure to sustain stakeholder trust and corporate credibility.

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