Financial reports

Financial reports

Financial reports provides crucial information for shareholders that are outside a business. The shareholders involving the potential investors are concerned with the observation of the business performance with regard to its monetary gains to facilitate development of informed investment decisions. Managerial reports are used by managers to determine the effectiveness of business’ internal operations with an aim of evaluating, formulating, planning and implementing effective strategies to address issues that arises during the conduct of the business.

Financial reports are detailed and involves objective information that is easily verifiable by the external shareholders. Managerial report on the other hand is more specific and is concerned with addressing structured decisions relating to a particular matter that is identifiable by the decision makers.

Financial reports are necessary for provision of reality in financial situation of an institution and its accuracy is quintessence.  Managerial reports however requires to be prepared in a timely manner to facilitate managers to make proactive decisions necessary for problem resolution (ATRILL & MCLANEY, 2011). Since financial reports are used by external stakeholders, the information contained in them is a summary of events an organization has been involved in within a given period of time. On the other hand, managerial reports are specific and impacts an individual department and well as other parties involved such as employees and customers.

Cost-volume-profit (CVP) analysis is a powerful tool involved in the management and monitoring of how profit of a business responds to changes in sales, product prices and operation cost (MCGRUFF, 2017). Information contained in a CVP analysis enable managers to plan organizations operations through determination of products and services needed to be prioritized to assist in the achievement of the targeted goals. CVP helps in guiding businesses through consideration of products that requires to be sold or manufactured and at what price. The analysis also helps managers to make decisions through reporting organizations success without losses. CVP also assists in provision of guidance on expenditure to prevent high expenses and high risks in consideration of fixed cost.

The potential problems associated with CVP involves the assumption that selling prices, cost and fixed cost are static. This aspect is impacted by outside impacts relating to political and economic influences making it dynamic. In most nations, industries are forced to adjust their prices due to unpredictable operational cost such as electricity and fuel (ATRILL & MCLANEY, 2011).. Thus, to ensure profit is maintained, organizations has to inevitably adjust their sales prices to prevent losses. It is observed that most fixed cost are flexible over all volumes of activity. This implies that great care has to be taken while assuming that operation costs are fixed.

As an advice to a friend, taking accountants advice is crucial to ensure that all managerial reports are considered to help in development of proactive decision making as well as incorporation of the CVP analysis. The cost incurred from the fees charged by accountants is valuable as they facilitate in guiding business’ financial direction to ensure profitability based on identification of areas that requires consideration (BORNSTEIN, 2014). Also, the use CVP analysis facilitates establishment of profitable opportunities as well as development of profit margins that are attainable in a month to facilitate profit maximization. Further, to ensure tax reduction, it is crucial for accountants to provide financial guidance to ensure budget is considered to prevent overspending. Moreover, maintenance of a good relationship with stakeholders such as suppliers guarantee high credit facility in case of shortages in cash flow.

 

REFRENCES

ATRILL, P. & MCLANEY, E. (2011). Finance and accounting for managers. Laureate Online Education custom ed. Harlow, UK: Pearson Custom Publishing.

MCGRUFF. (2017). Evolving with technology. Chapel Lake Drive.

BORNSTEIN, M. (2014). Comparative economic systems: Models and cases. Burr Ridge [etc.: Irwin.

 

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