Business Tools
The objectives of a financial/economic analysis is in constructing a reasonably consistent and meaningful set of data and relationships that will support the decision-making process for value creation. An effective analysis will help the analyst and manager to make sound economic judgement in investment choices,finanacing options, and operational effectiveness. This will help to define and judge company's present economic performance, future expectations and value.
The organaization is likely to be successful if you can identify and add value to the entire chain that links its products and services with its customers, employees, partners and shareholders. Business Managers must position their organization to meet the following critical goals:
increasing market shares
increasing productivity
increasing profitability
enchancing customers satisfaction and retention
enchancing employees,partner satisfaction and retention
enchanacing shareholders' value in increased return on investment
The best way to make judgement of a company's operation is done with an analysis of the income statement while resource effectiveness is usually measured by reviewing both the balance sheet and the income statement. On the other hand, to make economic decisions, its is often necessary to modify the available financial data to reflect current economnic values and conditions.
It is preferable to list the various items on the income statement as a percent of sales, thus highlighting the relative magnitude of the various categories in relation to the base of sales.
The difficulty that the manager/analyst faces lies in making choices from the financial statement data. The key is to understand the company's accounting policies, recent restructing and acquisitions, income tax provisions, deferred income taxes, post-retirement benefits accounting change, debt and industry segments. All these items will affect some how the development of the ratios used.
The main areas of financial performance, of interest to management, owners, and lenders along with the most common ratios and measures are the tools necessary to make sound judgement and a worthwhile financial analysis of a company.
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