As a result, they can make proper portion of credits among different borrowers. Financial state¬ment analysis helps in determining credit risk, and to decide the terms and conditions of a loan, interest rate, maturity date etc. 5. Assessment of the operational efficiency Financial statement analysis helps to assess to operate the company’s efficiency in managing a company. The current performance of the firm which are revealed in the financial statements can be compared with some standards set earlier and the aberration could be between quality and actual performance can be used as a hint of efficiency of the management.
Conclusion In conclusion, using financial statements in managerial accounting helps with the planning, controlling, and decision making process of a company. The information from the financial statements are used to analyze and establish budgets, forecast, variance reports, and ratios relating to the stability of the company. Managerial accounting data gives information driven info to these decision which can enhance decision making over the long haul. Business directors can influence this influential device to help make their business greater by seeing how managerial accounting profits regular business decision connections...
RATIO AND FINANCIAL STATEMENT ANAYLSIS Ratio and Financial Statement Analysis can be seen as a means to an end i.e. Ratio analysis is a financial tool to derive a Financial Statement. Financial Analysis are accounting reports in respect of economic activities prepared periodically to measure the performance of the business. It could also be said to be the analysis established for evaluating the performance of companies. Such criteria are used as parameters in deciding whether the organisation is performing satisfactorily or not.
This analysis is called Financial Statement Analysis. Financial Statement Analysis gives understanding to a firm’s financial position at a given point of time and predictions for the future. Financial Statements Financial statements include information that can help a firm or business know the stability of their organization. Financial statements
To achieve this manager's must balance the following objectives: Liquidity Profitability Efficiency Growth Return on capital The financial planning cycle either will be part of the business plan or will arise from the business plan. The financial planning cycle is a continuous cycle of activities that take place in the financial area as the business plan is implemented. These activities include: Addressing the present financial position Determining the financial elements of the business plan Developing budgets Estimating cash flows preparing financial reports interpreting financial reports maintaining record systems planning financial controls Minimising financial risks and losses. ▲ Financial markets are important to business because such markets provide access to funds needed for growth and for financing aspects of operations. There are two main financial markets: the money market and the capital market.
Typically, financial analysis is used to analyze whether a firm is solvent, liquid or profitable enough or not to be invested in. Financial analysis is also known as financial statement analysis or accounting analysis or ratio analysis. Wherein, the main aim is to assess the viability, profitability and stability of a business, sub-business or a project. It involves extrapolating the company’s past performance into an estimate of the company’s future performance. The future plans of the firm should be laid down in view of the firm’s financial strengths and weaknesses.
1.0 Financial Indicators or Metrics Performance measurement and management refer to goals, strategy development, benchmarking, human resource management and organizational feedback process. The reason for performance measurement of a firm will be to guarantee the viability and effectiveness of the operation and also will recognizing if those firm need attained its key objectives. There are many firms that use different method in evaluating their firm performance. One of the famous and common methods is by using financial indicators to evaluate their performance. Among them are financial information such as return on assets (ROA), stock market, sales, and also through the level of customer satisfaction and innovation implemented by firms.
The Net Profit Margin compares the net income and net sales of a company. The Net Profit Margin is expressed as a percentage. Net Profit Margin is used to analyse the financial performance of a company. The NPM is important for creditor and investor to make a correct judgement. Creditors and investors use this ratio to determine how well a company controls its costs.
QUESTION 1 Financial Accounting is an accounting system that tries to meet the needs of the various user groups especially for external users. It’s overall purpose is to construct financial reports that provide information about a firm's performance to external parties such as investors, creditors, and tax authorities. Types of financial reports used are Statement of Financial Position, Statement of income and Statement of cash flow. Users of the information are stockholders, government, investors and tax authorities. Management Accounting is an accounting system is used for internal decision making.
Question no 1: Part 1 Financial statement analysis refers to a process of evaluating financial performance of an entity and its financial position in relevant: Period of time Industry or social factors Economic or financial environment in which company is operating So that proper decision may be made at suitable time. In other words, you can say that ratio analysis explores pros and cons of the entity and is handy technique for the investors to observe the position and performance of the entity. Stakeholders of the company whether they are current or prospective are intended to obtain and to ensure the financial position and financial performance of the company in which they are going to invest. As Al Araqi trading company is willing to sell themselves that’s why these ratios are become more important to evaluate the company’s position and performance. These ratios are based on the financial statements prepared by the management and normally audited by the auditor of the company.