As SACs corporate business financial analyst, you will be required to provide the SAC Board of Directors and executive management team with essential financial information on the management of the SAC enterprise. What are the basic financial statements you will submit to the Board and management? What information is contained in each of the statements? How will the information that you provide be used by the management team? How will it help them manage the enterprise? What are the limitations of the information that you provide to the management team? How can the management team ensure that they obtain a complete picture of the enterprise?
The Sparklin Automotive Company (SAC) has been in business since 1930. It began business in the United States supplying spark plugs to automotive manufacturers (OEM, the original equipment market) and the automotive aftermarket.
SAC has introduced a new spark plug manufacturing process in the United States that produces a higher quality spark plug guaranteed to last 100,000 miles. The introduction of this spark plug has been very successful in the United States.
In addition to these types of projects, your responsibilities include creating and analyzing the monthly performance of each plant and consolidating the results into a set of financial statements footnoted with explanations.
Financial Management of SAC Enterprise
Sparklin Automotive Company (SAC) started its business in 1930 in US, with the supply of spark plugs to different automotive manufacturers. For this, it introduces a new process to manufacture spark plug that helps in producing higher quality of spark plug. These types of project require higher responsibilities of management in terms of preparing proper financial statement regarding these projects. This paper discusses about financial information that is provided to SAC's board of directors and executive management team by using different financial statements. Further, it discusses about how SAC's management will use this information to manage the whole enterprise.
Basic Financial Statements
Financial statements refer to the record of an organization's financial position. In order to provide basic financial information to the management, organization's financial statements are divided into four parts such as income statement, balance sheet, cash flow statement and statement of retained earnings (Warren, Reeve & Duchac, 2008). All these statements will submit by financial analyst to the board and management of SAC.
Information in Financial Statement
Each statement contains lots of information that is necessary for the management to make several managerial decisions. Description of information for each financial statement is as follows:
Income statement reflects profit and loss from business operations in a particular time period. In this statement, a firm includes the amount that is received from the sale of goods and services and the amount (cost and expenses) that is paid for delivery of these goods and services (Warren, Reeve & Duchac, 2008). Following information are included in income statement of SAC:
Net Sales: The amount that is received by SAC from the sales of spark plug is included in net sales amount. If there are any returned goods and defective goods during that period, the amount of such goods is also deducted from the sales amount to get the net sales amount.
Cost of Sales and Operating Expenses: In this, all expenses that occur to convert the raw material into finished products will include (Warren, Reeve & Duchac, 2008). There will be different operating expenses such as selling and administration expenses and depreciation expenses.
Operating Profit: It is the difference between net sales and operating cost (cost of sales and operating expenses).
Interest Income and Expenses: It includes all expenses that SAC paid as interest to its creditors and all revenues that SAC earn through sale of its some investment.
Income Tax Information: Amount of tax that is paid by SAC.
The balance sheet is an important financial statement that reflects the financial position of a company to its management. It shows what are the assets and liabilities of SAC on a specific date that is important to carry out its different business activities (Warren, Reeve & Duchac, 2008). In balance sheet of SAC following information is included:
Assets: It includes information related to both fixed assets and current assets. Current assets are those assets which can easily turn into cash ...
The solution discusses the financial management of SAC enterprise.