Essay On Financial Statement Analysis
Financial statement analysis is not the only tool accountants and finance experts use as a basis for coming up with business decisions. One look at the income state will show whether a company can afford to set up a new branch in another state. The same look can also impress on the minds of the readers that the company should close shop because it is on an unavoidable slide into the land of bankruptcy. Finance is a subject that fuses the current economic events into the company’s financial statements. Finance includes forecasting future sales, expenses, costs, and other interest laden accounting terminologies.
The following paragraphs will explain the article in relationship with class lessons on accounting, management, finance, and economics. Summary of the main points in the article, The article CFOs exploring layoff alternatives, salary freezes most popular is a very timely issue. The people feel that the U. S. economy and leadership is presently bottoming up. A survey conducted with 334 corporate executives revealed that most of the Chief Financial officers of Major American companies are outspoken in their desire to keep their companies away from the path that Washington Mutual, Lehman Brothers and many others have gone.
A survey conducted shows that finance executives they need more help from the board of directors to weather the current financial storm enveloping our nation. The financial executives are on the warpath to implement drastic measure to stop the bleeding of scarce company resources. This is in response to the current economic depression. These executives have voiced their need for the board of directors to look at business matters on the side of the executives to reach the light at the end of the stormy business tunnel. The chief financial officers have pointed to reduction of costs and expenses as the order of the day (Haig, 2008).
They eagerly await the implementation of salary freezes, unpaid time off to rescue jobs and other cost savings. These stopgap measures are needed by the finance leaders at this time because the recent 2008 depression had enveloped the United States and other countries around the world with its gloomy character. However, some finance executives see signs of recovery starting with the current year. About eighty percent of these finance executives believe that the United States economy will bounce back from its lackluster business performance during the first quarter of 2010 or even a little later.
On the other hand, the financial executives know that the United States economy had grown by sixty –nine percent during 2009. The finance officers are eager to look for new avenues to finance their business activities. About 34 % of the finance executives believe that expense control is the best way to increase its bottom line. Only 15% interviewed acknowledged that competition is the reason for their business backlash. These financial executives are well bent on giving in to small doses of health care costs. The company will also invest in technology spending to keep itself abreast or even ahead of its competitors.
The executives were one in stating that there should be reduced cash outlay for capital expenditures, hiring, and pricing of company products. Reaction to the article, I agree with the finance executives. Finance executives have honed their skills in interpreting financial statements. These financial statements generally include the balance sheet, income statement and statement of cash flows. The freezing of salaries will surely reduce labor payment. An increase in salaries would surely mean there is more cash outflows than before.
An increase in expenses would surely decrease the net profits. This is because net income is end product of deducting all expenses and costs of sales from the total sales output. I also agree with the company executives for being on the path loosen the board of director’s business grip (Fridson, 2002). Further, it is monetarily right for the finance executives to believe that forced leaves will reduce labor cost and increase net profits. The article is also correct in stating that the finance executives must focus on consumer spending in the next year’s business endeavor.
It is also right that the United Depression will end by the first half of 2010 or a little bit later. The author is also correct in stating that most of the Chief Financial Officers of over thirty companies need the business help of board of directors to flush out all money needed for the maintenance of a healthy business environment. For example an increase in salary would surely reduce the net profit. The right attitude is to set salary increase to a later date when financial and other business conditions are ripe for the salary increases.
In addition, the author was right in stating that the economic plight would strike bottom. There are strong signs stating that the approaching economic turmoil will reverse itself because it had already hit the bottom. The author was completely right in stating that the board of directors must go along with the chief finance executives. The finance officers need the approval of the board of directors in borrowing money to finance its day to day business activities. The finance officers were also right in stating that forced leaves without pay is a very good alternative to bounce the business back into economic health.
In addition, the article writer was right in sensing that the salary freeze is one of the best alternatives to resolving an issue. The chief executives were also right in the implementation of a salary freeze of the employees’ and management’s salaries. The other rightful alternatives implemented by the company include elimination of bonuses. Bonuses will cause a reduction of the net income. Another good alternative is the restructuring of loans and other finance agreements (White & Fried, 2003).
And, another good suggestion by the author states that all business executives should collaborate or brainstorm with representatives of all sectors of the organization. The author is right that in stating that the economic recovery is still far off so there is be a lot of belt tightening to be done. The author is also right when he stated that the United States economic growth had reached sixty nine percent and that its consumer spending also reached 52 percent for the same year. The author was true in telling that the main concern now of chief financial officers is that their companies will stay afloat.
Two ways of staying afloat in the business world is to increase sales or decrease costs. The companies generally chose reducing costs because it can be easily controlled being an internal matter to be tackled. It is more difficult to elect increasing revenues because there are other issues to consider. One of the issues includes having to produce goods that clients will prefer over the competitors. Therefore, there is a probability that the customer may not like the products resulting in lower sales and an approaching income statement indicating that the companies generated huge profits.
The article was well written. It used real facts in describing the economic depression. It includes timely statistical facts. These facts include percentage for our 2009 time period to add credibility that the article was well prepared. The article mentioned the United States growth rate of sixty nine percent for the 2009 unfinished books. The article is good because it discusses the economic situation hounding every American in the United States. The article is good because it teaches the readers the importance of and how to read a business related book.
The article was evidently well researched as evidenced by the statistical data was gathered and interpreted. The author is really a hardworking person because he has mustered enough physical as well as the use of his free time to explain to the readers his deepest thoughts on the economy. This article relates harmoniously to the class lessons in many ways. One way is for the author to discuss the economic aspect of the business activities. The author speaks about financial statements like balance sheet, income statement and the statement of cash flows.
The author also speaks about the accrual basis recording of business transactions in the United States. The articles mirror the real -life unfolding of events in the business world. The author also talks about net profit, sales and projected net income. The author gives important notes that are related to business such as the expense data and the competition’s fifteen percent of the market. Another important business detail is the author’s timely discussion of mortgage interest rates. Interest rate computation is part and parcel of the classroom business subject.
In addition, the author fruitfully discusses his projection of the economic condition in the future. The author also discusses about health care costs which fall under expenses and costs in accounting parlance which had been taken up the class’ interest rate topics. The author discusses about survey results. This is in line with class discussion on the topic of accrual basis of accounting. Accrual basis includes the assumption that the business will continue to exist until the far future. Accrual basis accounting includes accounts receivable and purchases on account (Helfert, 2001).
IN A NUTSHELL, the above discussion vividly explains financial statement analysis is not the only tool accountants and finance experts use as a basis for coming up with business decisions. The above article discussion clearly shows that the income state is the main tool for diagnosing if the company has done well for the past year or years of business operations. The profit -generating company can afford add another branch in the nearby state to include as part of its assets. A glance at the financial statements will prove that the company should stop operations because it has been generating a loss for the past year or years of operation.
Clearly, finance is a subject that incorporates the current economic ingredients into the company’s financial statements. The article here is very useful because it complements the financial statements in terms of reliability and validity. Finance experts need articles like this to augment financial data which is often obscure. Conclusively, financial statement analysis is not the only tool accountants and finance experts use as a basis for coming up with business decisions. REFERENCES Brockwell, P, Davis, R. , 2002, Introduction to forecasting, N.
Y. , Springer Press CFOs Exploring Layoff alternatives, salary freezes most popular, retrieved April 11, 2009, http://www. accountingweb. com/cgi-bin/item. cgi? id=107272 Fridson, M. , 2002, Financial Statement Analysis, N. Y. , J. Wiley & Sons Haig, R. , 2008, A History of the General Property Tax in Illinois, N. Y. , BiblioBazaar Helfert, E. , 2001, Financial Statement Analysis: Tools & Techniques for Managers, N. Y. , McGraw-Hill Press White, G. , Fried, S. , 2003, The Analysis and Use of Financial Statements, N. Y. , J. Wiley & Sons
