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AL Chapter 20 - Finance and Accounting strategy - Coggle Diagram
AL Chapter 20 - Finance and Accounting strategy
Use of accounting data to make strategic decisions
Owners and shareholders, Sole trades and partnerships will use their financial statements to calculate tax, and ratios to assess whether the business is performing
Lenders of finance: Potential leader will see the financial statements to see suitability for a loan
Government: uses accounts to assess tax due
Customers: assess financial position to ensure it will be trading in the future
Community: Live or work in he areas, to see whether the business will continue operating
Managers: uses accounts to compare the performance
Suppliers: see if the company is in a position to pay for goods or services
Limitations of published accounts
Cannot be taken as an accurate predictor of the future, because they are based on past data
Financial statements contain quantitative information and not qualitative aspects on a business
A weak performance in one department might be masked by an outstanding financial performance in another department
Using accounting data to enable strategic decision making
Ability of the business to raise finance for a strategy
Value of a busienss
Business liquidity position
Profit and loss statement
Annual reports and strategic decision making
Highlights of the year - summary of key changes
Directors report - information about individual directors and recommendations of the dividends to be paid
Overview of business performance in terms of sustainability - Highlights performance of the business
Independent auditors report - specialist external accountants who asses the company accounts to ensure they are accurate and fair
Usefulness
Investors - Keeping shareholders up to date with developments in the business
Customers - Reassurance of the company's future
Suppliers - Interested in the companys liquidity position
Employees - Interested in the overall financial and social performance
Ratios and strategic decisions
Return on capital employed can identify whether a strategy is worthwhile
Profit margin identifies the profit per sales appropriateness
Liquidity ratios shows whether the business can pay its suppliers
Differentiation strategies increase profit for the business
New product development may reduce short term profitability and liquidity as funds are put into research and development
Limitations
Window dressing, improves business financial performance in the short term, and provide favourable data
Using short term borrowing, selling non-current assets, bring forward later sales to increase profits