Business Finance - Management Week 6 Assignment- Managerial Finance

Week 6 Learning Resources

Managerial Finance

Financial Appraisals

When managers review financial ratios for an organization, their goal is to assess the financial condition of the company and identify areas in which it is performing below the industry standards. Then, the managers can take that information and provide recommendations to improve those measures and better align the organization with industry averages. Using these resources, you will examine the use of financial ratios to assess an organization’s performance.

· Brigham E. F., & Houston, J. F. (2022). Analysis of financial statements. In  Fundamentals of financial management (16th ed., pp. 128–150). Cengage Learning.

· Petroska-Angelovska, N., & Ackovska, M. (2016).  Financial ratios for assessment of operations success in enterprises of Macedonian hospitality industryLinks to an external site. .  Economic Development / Ekonomiski Razvoj, 18(3), 108–119.

Making Decisions Using Ratio Analysis

Through these resources, you will explore how ratio analysis can be a beneficial tool to you as a manager. Ratio analysis can help you understand the financial results and trends that occur over time. It can help you identify key indicators of organizational performance. After uncovering where the strengths and weaknesses are using ratio analysis, you can develop better strategies and initiatives based on that data.

The following is a tip on the relationship between decision making and ratio analysis. In the Module 2 Part 1 Assignment Template, you will fill in two financial statements: the balance sheet and the income statement. To find out how a decision may affect the ratios, you can change the figures from the financial statements. For example, if the inventory turnover ratio (5 times a year), which is calculated by dividing sales into inventories, is slightly below industry standards (6.7 times per year), how can this ratio be improved? To find out, go to the Excel sheet and change the price of inventory to be slightly lower (meaning you will have less inventory on hand), and you will find that the ratio improves. Now, increase the figure of sales slightly, and you will find that the ratio improves as well. The ratio would worsen if you had made your adjustments in the opposite direction. One strategy you might recommend improving the inventory turnover ratio within 3 years would be to increase the number of numerators (top number: sales), decrease the denominator (bottom number: amount of inventory), or both. Whatever your recommendations, you will need to explain in detail why your suggestion is the best course of action.

· Business Development Bank of Canada. (n.d.).  4 ways to strengthen your business using financial ratiosLinks to an external site. .  https://www.bdc.ca/en/articles-tools/money-finance/manage-finances/using-financial-ratios-analyze-business

· Biedron, R. (2021, July 13).  Ratio analysis of financial statements: Analyse to drive better performanceLinks to an external site. .  Planergy. https://planergy.com/blog/ratio-analysis-of-financial-statements/

· Lumen Learning. (n.d.).  Using financial ratios for analysisLinks to an external site. . In  Boundless accounting. https://courses.lumenlearning.com/boundless-accounting/chapter/using-financial-ratios-for-analysis/

The Limitiation of Ratio Analysis

As with any financial analysis technique, there are several limitations of ratio analysis. It is crucial to know these limitations to avoid making misleading conclusions. As you review these resources, consider the limitations of ratio analysis.

· AccountingTools. (2021, April 11).  What are the limitations of ratio analysis?Links to an external site.   http://www.accountingtools.com/questions-and-answers/what-are-the-limitations-of-ratio-analysis.html