Accounting and Finance for Managers

A Decision-Making Approach

Matt Bamber, Simon Parry

• Publisher: Kogan Page
• Year: 2017
• Print ISBN: 9780749481148
• eBook ISBN: 9780749481155
• Edition: 2
• Topic: Business
• Subtopic: Finance
• Index: Business

Accounting and Finance for Managers is specifically designed for MBA, EMBA, MA and MSc Business and Management students who require a grounding in the key concepts of accounting and finance. Including real financial statements and worked examples from well-known businesses, as well as full exercises and questions at the end of each chapter, this accessible guide provides students with the financial tools and analytical skills for managerial advantage.

Taking a uniquely practical approach that focuses on the financial aspects of business decisions, the book covers all the core topics of accounting and finance, including basic bookkeeping, financial analysis, business planning, cash-flow analysis, and investment decisions. Now in its second edition, Accounting and Finance for Managers contains updated examples and case studies from Burberry, Ryanair and Whitbread, new content on corporate governance and ratio analysis, reflective activities and a new chapter on financing decisions. Bonus online material includes guidance and teaching advice, additional questions and lecture slides for each chapter.

03

Financial analysis: Part I

OBJECTIVE

The objective of this chapter is to help develop and refine financial accounting information analysis and interpretation skills. The emphasis of this first financial analysis chapter will be on undertaking appropriate forms of analysis, including calculating key management ratios. This chapter will show how the results of the various techniques described can be employed to help assess the position and performance of an entity.

LEARNING OUTCOMES

After studying this chapter, the reader will be able to:

• Identify the main aspects of performance which can be evaluated through financial statements.
• Apply horizontal, trend, vertical and ratio analysis to the financial statements contained within an organization’s annual report.
• Evaluate a company from the viewpoint of current and potential investors as well as other stakeholders.

KEY TOPICS COVERED

• Aspects of financial analysis: profitability, liquidity, efficiency, solvency and investors’ returns.
• The use of ratios and other techniques to analyse and appraise full sets of company accounts.
• This chapter will contain mini case study exercises in which students must evaluate a company from varying viewpoints.

MANAGEMENT ISSUES

Although it is useful that managers be able to compute ratios, it is more important that they are able to develop the analytical skills through interpretation and analysis of financial statements.

Introduction

This chapter considers various forms of financial statement analysis, including:

• horizontal analysis;
• trend analysis;
• vertical analysis;
• ratio analysis.

We will combine these approaches in the chapter that follows. We will assume that undertaking these forms of analysis is (relatively) new to you. When used appropriately, ratio analysis can be a highly effective way of manipulating data into meaningful information. The key to undertaking ratio analysis is to focus on the audience and their question(s). A current (or potential) investor, for example, might want to know about the position, performance and financial strategy of the organization. A lender might want to gauge the short-term liquidity – to gauge whether the firm can make their obligatory interest payments – and the long-term solvency – to identify whether there could be problems meeting repayment plans. On the other end of the continuum, an environmental campaigner would probably have very different motivations for investigating the annual report and financial statements. When calculating and interpreting key ratios they are likely to be judging the firm from a social, environmental or ethical perspective. Therefore, the ability to calculate a long series of financial ratios is good knowledge to have but a more useful skill-set to develop is being able to identify the most appropriate ratios and then have the capacity to interpret them.

The usefulness of financial ratios has long been established. Chen and Shimerda (1981) in their paper ‘An ...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Introduction
• 01 Introduction to accounting
• 02 Accounting concepts and systems
• 03 Financial analysis: Part I
• 04 Financial analysis: Part II
• 05 Business planning
• 06 Budgets and performance management
• 07 Cash and working capital management
• 08 Pricing decisions
• 09 Investment decisions
• 10 Financing decisions
• 11 Operational decisions
• Appendix A An introduction to double-entry bookkeeping
• Appendix B International Accounting/Financial Reporting Standards
• Appendix C Example earnings announcements
• Appendix D Discount tables
• Appendix E Annuity factors
• Useful web links
• Index
• Backcover