Financial Functions
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Please assist with 1000 words regarding how to analyze the financial functions of an organization.
Please include at least 2 pages (single spaced) in length (not including the cover and reference pages), describe the approach that should be taken to research the subject, and include three references.
Please note I have already written an introduction specific to financial analysis and why it is important, discussed financial misconduct and scandal, and detailed how/why financial statements and balance sheets should be analyzed.
I need assistance with determining how to analyze specific financial functions, determining the key areas that should be analyzed and why, and what recommendations could be made for sound financial controls.
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Solution Summary
The answer to this problem explains how to analyze the financial functions of an organization. The references related to the answer are also included.
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In compliance with BrainMass rules this is not a hand in ready assignment but is only guidance.
Specific financial functions should be analyzed as follows:
The first function should be analyzed is the liquidity of the organization. This is the ability of the organization to settle all current debts with current available assets. If the organization is not able to pay its current debts in time, its reputation with creditors goes down and the supplies might stop (1). The organization may have to cease its operations if it cannot pay for its raw materials, wages, and utilities. For sound financial control in this area it is necessary to regularly assess the liquidity with the help of liquidity ratios. Specifically, this means calculation the liquidity ratios. These are the current ratio, acid test ratio, cash ratio, and net working capital. If there is a sudden decline in any of these indicators the financial manager should take corrective action.
The second financial function that should be analyzed is the profitability function. Profitability is important for an organization's long term survivability. It is required to survive and remain attractive to investors and analysts. Profit is the key main goal for many organizations. Profitable businesses are able to reward its owners with large return on their investment (2). Business managers increase profitability because it is their objective. Organizational changes are introduced to improve profitability. The organization's net profit is the revenue after all the expenses related to the manufacture, production, and selling of products are deducted. Profits go directly to the owners of the company or to the shareholders. For sound financial controls relating to profitability, the profitability ratios must be calculated. These ratios are gross profit rate which show how much gross profit is generate from sales. The next is return on sales which is the percentage of income derived from dollar sales. It is called net profit margin. The next is return on assets or the net income divided by ...
Education
- BSc , University of Calcutta
- MBA, Eastern Institute for Integrated Learning in Management
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