Finance For Strategic ManagementOne

Finance For Strategic Management
One of the most important tools for assessing the strength of an organization within its industry is financial analysis. Financial analysis is a comprehensive term that refers to any use of available financial data to evaluate the performance, condition, or future prospects of organization.
The finance function is unique both as an instrument of strategic analysis and as a creative strategic tools. This function has the responsibility of ensuring that the strategic plans and objectives of the firm are feasible for the (financial) resources which it has.
Especially, financial analysis helps managers to answer the following questions about a proposed strategy:
1. Is the strategy appropriate, given the company's current financial position in the industry?
2. Does the company have the financial resources to initiate the strategy and carry it out?
3. Are financial resource being allocated correctly to achieve the firm's strategy?
Finally, through using published financial data, the strategist can analyze the behavior and competence of rival firms within the industry and make judgements about his own firm's relative competitive position.
The Analysis Of Financial Statement
In this section I first examine the basic financial data available for managers and investors. This primary sources of company financial data the company's annual repots are: balance sheet, income statement, and statement of changes in financial position.
Balance sheet or statement of financial position:
Assets = Liabilities + Owners' Equity
Income statement or statement of results from operations:
Revenues + Gains - Expenses - Losses = Income
Statement of changes in financial position:
Cash Inflow - Cash Outflow = Change in Cash
The balance sheet represents a statement of the financial position of the firm on a given date, including its assets holdings, liabilities, and owner's equity. The balance sheet for Jimco, Inc., is shown in Table 5-1.
Assets are the resources that an organization controls, fall into two main categories: current and fixed. Current assets are cash and other assets that usually are converted to cash or are used within 1 year (e.g., marketable securities, accounts receivable).
Fixed assets are assets that have a useful life that exceeds 1 year (such as property, buildings, and equipment). Liabilities are claim by nonowners against company assets (such as banks). Liabilities fall into two main categories: current and long-term. Current liabilitiesare accounts that typically are paid within 1 year (such as current bills the company must pay, and short term loan). Long term liabilities are debts usually paid over a period that exceeds 1 year (such as bonds).
Shareholders' equity represents claims by owners against the assets. Shareholders' equity is equal to the company's assets minus liabilities.
The income statement is a financial statement that summarizes the financial results of company operations over a specified time period, such as a quarter or year. It shows revenues and expenses. revenues are the assets derived from selling goods and services. Expenses are the costs incurred in producing the revenue.