Financial Statement and Ratio Analysis: Key Tools to Successful Financial Management Executive SummaryHow do firms assess their own strengths and weaknesses? How does a firm measure management's performance? Finally, how do firms compare themselves against the competition? The answer to these questions lies in the fundamentals of financial management. A crucial element in the success of any business organization is understanding the fundamentals of financial management. "Financial management focuses on business decisions that add value to the firm" (Baker & Powell, 2005, p. 4). In order to make sound financial decisions that create value, a firm's management must critically employ a number of financial analysis principles and techniques. Financial statement and ratio analysis are the most common techniques utilized in today's business environment as a means to assess a firm's financial health. Although financial statement and ratio analysis have significant limitations, these tools are designed to provide essential guidelines and strategies for making well-informed managerial and business decisions.
Historical financial statement
Finance
Graphique du bilan de la Wikimedia Foundation / Gr...IntroductionA company's finances and operations are integrally connected. The activities, method of operation, and competitive strategy all serve as the foundation of a firm's financial structure. Conversely, almost all financial decisions affect company operations to some degree. The information presented on a firm's financial statements provides management with a valuable window to this reality. Financial statement analysis is the process by which management critically evaluates and compares relationships between various financial statement components. As a result, managers' are able to monitor and improve company performance as well as predict future financial health. Key financial decisions are based on management's ability to utilize financial analysis as a tool to measure the firm's financial performance, the effectiveness of its management, and as a means of comparison to companies within the same industry (Mautz & Angell, 2006).
A firm uses financial analysis as a...