A) Why does financial performance matter?
Knowing the financial performance of the company is important because it enables you to see where the company stands, what direction it should go, what decision should be made for its future, and where the company should set its goals. In order to measure the financial performance of the company, we can use different tools for analysis. By analysis we mean a set of measures that helps us to analyze company’s financial results. Financial performance analysis is important from for many reasons. Firstly, vertical analysis shows us how efficiently the company is using its assets to generate revenues. It can be used for comparison of similar companies with different sizes. The vertical analysis helps us see clearly that the company with the highest amount of sales does not really need to be the most efficient one. Secondly, horizontal analysis is a tool that shows us how company’s financial performance develops in time. We use company’s financial results from the previous year as a base to which the results from the current year are going to be compared. Among other reasons, it helps us to evaluate whether the management performance goals, such as a 20% increase in revenue, were reached successfully. B) How can the management accountant improve it?
The company can face various challenges, in example: illiquidity, high inventory and its inefficient turnover, low employee retention, high cost structure, and high debt ratios. The management accountant is familiar with different ways of improving financial performance by making necessary decisions and informing various departments about his findings concerns. He can recommend various solutions for improving the financial performance. For instance, in order to improve liquidity ratios that are usually date-specific, the management accountant can make suggestions as to when deliveries of goods are made to positively influence these ratios. He can also suggest taking...
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