It is a subset of accounting. It requires specific tasks to be completed in support of the financial stability of an enterprise:
- Accounts: Historical accounts, current accounts, and general ledgers must be balanced and maintained.
- Completion of Payroll.
- Debits and Credits must be posted.
- Invoices must be Produced.
- Financial transactions must be Recorded.
General Ledger Review
The department’s ledger transactions are analyzed to verify that all the charges and credits are valid and that the transactions are appropriate and in compliance with all the applicable policies and regulations. It is dissimilar to the financial management of an account.
Financial Assessment Reports
Financial professionals must be able to analyze financial statements. It requires an understanding of three key aspects:
- The structure of the financial statements
- The economics of the industry in question
- The firm’s strategies to differentiate itself from competitors
Step Of Financial Statement Analysis
- Identify The Economic Characteristics
Determine the chain of activities involved in the creation, manufacture, and distribution of the firm’s products or services. Value chain analysis techniques like Porter’s Five Forces or analysis of economic attributes are typically used.
- Identify Company Strategies
- Assess the nature of the product or service offered:
- How unique is the Product or Service.
- Profit Margins
- Cost Control
- Supply Chain Integration
- Geographic Diversification
- Asses The Quality Of The Financial Statements:
Assess whether the financial statements adhere to the relevant accounting standards. Is the balance sheet a complete representation of the firm’s economic position? To answer this question, examine the balance sheet accounts in respect of:
- Analyze The Current Profitability And Risk
Use the key financial statement ratios in respect of:
- Asset Management
- How profitable are the firm’s operations relative to its assets-independent of asset financing?
- How profitable is the firm for the equity shareholders?
- Debt Management/Coverage
- Risk/Market Valuation
- Prepare Forecasted Financial Statements
Based on reasonable assumptions about the future prospects of the firm as a part of an industry, determine how the assumptions will most likely impact the cash flows and funding of the enterprise. Extrapolate it into a pro-forma financial statement for the company.
Budgeting And Forecasting
Budgeting And Forecasting Is Important For Your Business Because:
- It allows you to set targets for income and expenditure. By using these targets, you can measure yourself against your targets during the year.
- It is impossible to run a stable business without budgeting and forecasting. In fact, the top companies in the US (corporate and small family-owned) employ a dedicated in-house or an outsourced chartered accountant tasked with this function.
Why Budgeting And A Proper Cash Flow Forecast Is Vital:
- Early Risk Identification
- Prediction and Planning of Cash Flows
- Income Control
- Finance Growth
- Manage the Sales Pipeline
- Track Sales Performance
- Ability To Make Informed Strategic Decisions
- Win the Confidence of Investors