Running head: FINANCIAL ACCOUNTING FROM A MANAGERIAL PERSPECTIVE 1
Financial Accounting from a Managerial Perspective
The financial sector of a company is one of the most important components of a company. Therefore, financial accounting is very vital from a managerial perspective. One of the ways of financial accounting is the analysis of the cash flow statement. A cash flow statement is a financial document that indicates how the alterations in a balance sheet affect cash in a company. Addedly, a cash flow statement breaks down an organization’s operations to investing, operating, and financial aspects. The statement of cash flows is a vital document that indicates the trend a company is taking, in the financial aspect (Weygandt, Kimmel, & Kieso, 2014).
The statement of cash flows is significant in the following ways. Firstly, a cash flow statement has specificity and where the cash was spent. Unlike the profit and loss statement, the statement of cash flows will provide an easier track of spending for business. This ensures that the business is profitable. Secondly, a cash flow statement can help a business to create additional cash. Evidently, profits made are a source of cash in a company. Spending less of payments, as monitored by the cash flow statement, leads to additional cash. Timely collection of receivables I the company could also lead to the creation of excess cash in business (Collins, Hribar, & Tian, 2014).
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Thirdly, compared to the other financial statements in a company, the statements of cash flows are in a better position to indicate the performance in the financial sector of the company. One of the best examples of a key performance indicator is creating additional cash. Cash flow statements can help a company to come up with ways of creating more cash, and therefore showing a higher key performance indicator. Lastly, it is imperative for every business venture to make decisions in financing. Cash flow statements facilitate the decision making in the companies, by accounting for every single coin used in financing the various activities (Brown, Huang, & Pinello, 2013).
Comparative analysis is an accounting method used to establish between a company’s present financial performance and its past, and the financial performance of a company compared to another one in the same field. Managers have to conduct analyses aimed at connecting the present performance to the past. Comparative analysis indicates the competitiveness of a company. Comparative analysis is major based on the financial statements in a company and is done over a given period. A company can monitor its economic trend, and focus on the factors that lead to such trends (Weygandt, Kimmel, & Kieso, 2014). The need for comparative analysis is outlined below.
Comparative analysis is pivotal in evaluating the holistic company progress in the financial aspects. To begin with, a comparative analysis indicates the nature of the trend in the company’s financial sector. The trend is vital in determining the direction taken by the company in economic sustainability. Comparative analysis also reveals the trend that is the backbone of the managerial decisions such as improvement and change of action. Secondly, comparative analysis shows the extent of the achievement of a company’s goals. Through the relationship between the past and the present financial performance, it is clear that the company has either stuck to the managerial objectives or not (Vogel, 2014) .
Thirdly, there could be skyrocketing or plummeting of the components of a company’s financial documents. Such change could be unexpected. Comparative analysis denotes such adjustments. This makes it easier for the business venture to determine the trend it has taken the financial aspect. Lastly, the comparative analysis offers the mangers of companies a platform to come up with strategies to mitigate unprecedented risks that a business venture is likely to face in their future (Fullerton, Kennedy, & Widener, 2014).
References
Brown, L. D., Huang, K., & Pinello, A. S. (2013). To beat or not to beat? The importance of analysts’ cash flow forecasts. Review of Quantitative Finance and Accounting , 41 (4), 723-752.
Collins, D. W., Hribar, P., & Tian, X. (. (2014). Cash flow asymmetry: Causes and implications for conditional conservatism research. Journal of Accounting and Economics , 58 (2-3), 173-200.
Fullerton, R. R., Kennedy, F. A., & Widener, S. K. (2014). Lean manufacturing and firm performance: The incremental contribution of lean management accounting practices. Journal of Operations Management , 32 (7-8), 414-428.
Vogel, H. L. (2014). Entertainment industry economics: A guide for financial analysis .
Cambridge University Press.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2014). Managerial Accounting: Tools for Business Decision Making .
