Table of Contents
2.0 Relationship between financial analysis and business risk assessment in decision making.
3.0 Purpose and structure of financial statement in decision making.
4.0 Sources of finance for short and long terms business decisions.
5.0 Influence of ownership structures in the measurement of financial performance.
6.0 Ethical, governance and accounting standards in financial reporting and business decision‐making
7.0 Project Analysis.
Financial management and its principles, techniques and processes play an important role in the business organization (Attril and McLaney, 2011). In consequence, understanding various issues of advanced finance is vital for both decision-makers and professionals, particularly project management at the senior management level in an organization.
This report examines different important issues of advanced finance for the decision-makers in an organization. Firstly, the report explains the relationship between financial analysis as well as business risk assessment. Secondly, it illustrates the structure and purpose of several financial statements in relation to decision-making. Thirdly, the report describes the sources of short and long-term finances for the business. Fourthly, the report analyzes how ownership structure impacts the measurement of financial performance. Fifthly, the report includes the importance of ethical, governance and accounting standards in business decisions. Finally, the report analyzes a particular project to justify if it will be profitable or not to invest in.
2.0 Relationship between financial analysis and business risk assessment in decision making
According to Attril and McLaney (2011), the purpose of an organization to engage in business is to extend profit margin and to reduce the risk level. Financial risk may come from probable loss due to adverse price fluctuations in the financial market as well as partner default.
The financial analysis focuses on different techniques, procedures and tools to get the knowledge to evaluate several options and select the best results based on external and internal factors for making the right decision for the business organization (Attril and McLaney, 2011).
Risk refers to the substantial loss coming from unrespectable economic situations regarding operating activities and investors’ portfolios. The outcome of an investment refers to the profit that the investors earn through the business transaction. A risk-reward trade off refers to profit that the investors make at specified risk levels (Attril and McLaney, 2011).
As a result, financial analysis with the decision-making process and risk assessment with risk-return trade-off interrelate. For example, an investor would like to buy stock or bonds from a stock or bond issuer. In this case, the investors first have to analyze the risk based on expected profit because in the stock or bond market there is a substantial risk. Then the investor needs to make the financial decision to invest in based on the result from the analysis.
3.0 Purpose and structure of financial statement in decision making
There is mainly four kinds of financial statement which has distinct purpose and structure. These are the income statements, cash flow statements, balance sheets, and retain earning (Attril and McLaney, 2011). The income statement discloses how company assets and liabilities are used within the stated accounting period. The cash flow statement reveals the total cash inflow and outflow within a certain period of time. This also shows the present total cash in hand, which is also shown in the balance sheet. The balance sheet focuses on company assets, liabilities, and financial section. The financial section of the balance sheet discloses the net value and/or shareholders’ equities differentiating assets and liabilities. Retain earning shows the total money hold after issuing dividends to stockholders describing dividends, net loss and profit and retain earning balance (Atrill et al, 2011).
Financial decision-makers in an organization use these financial statements to make the right decision for the business through learning more, checking out components of the balance sheet, understanding the importance of cash flow, getting knowledge o the income statement. In addition, investors, stockholders and potential creditors use these financial statements to calculate and analyze a number of financial ratios to evaluate the company’s performance to identify financial strengths and weaknesses, as well as to determine if the organization is a good investment and credit risk. As expert investors always look for an organization that has a huge amount of free cash flow, a financial statement showing the company’s free cash flow is significant to attract investors. The key reason is it discloses the organization’s ability to pay dividends and debt, extend the business, and buy back stock all of which are important to attract investors and stockholders.
Each financial statement only provides a part organization’s financial condition. When they all are added together, then a complete picture of the organization’s financial condition comes out. The relationship between different financial statements is shown in the following figure:
Figure: Relationship between financial statements
Financial statements are differed based on profit and non-profit organizations. The non-profit organization focuses only on its activities but the profit organization calculates income quarterly. Profit organization aims and objectives are to make a profit and distribute this profit to its investors, where non-profit organizations’ main target is to provide social needs rather than maximizing profit. Profit organizations have to make a balance sheet, income statement, and cash follow statement to assess business performance, to attract investors, to make financial decisions for the business extensions, where non-profit organizations do not need to consider these statement (Atrill et al, 2011)……