How Financial Assessments Help Organizations Essay

1004 Words 5 Pages
How Financial Assessments Help Organizations
Managerial Analysis

Abstract Financial assessment provides management with the ability to make critical business decisions for their organization; this involves examining existing data to gain insight on the current and future condition of their organization through the balance sheet, income statement. In the book, What Every Manager Should Know about Financial Analysis, Alan Donahue states “The inability to understand and deal with financial data is a severe handicap in the corporate world”, which seems fitting to mention as I discuss in this paper the significance in doing a financial assessment and some of the necessary tools that are needed in order to do a financial assessment.
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Income Statment The income statement presents an organziation’s performance over a certain time period; it does not provide much about the current financial position moreso than it’s future financial position. The elements of importance in the income statement include: revenues earned, expenses incurred, and net profit or loss. Net income is the bottom line, this is the main indicator of the organization’s accomplisments over the time period.
Ratios
There are three main sources of that can measure the overall health of an organization, liquidity, leverage and profitability. Liquidity basically means the ability of the organization to pay its debts or expenses; liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Leverage is the proportion of an organization’s capital that has been contributed by investors compared to creditors, simply put, the amount of debt used to finance organizations assets; leverage ratios include debt/equity ratio, interest coverage and equity multiplier. Profitability measures the performance of the organizations ability to utilize its resources to make a profit; profitability ratios include profit margin, return on assets and return on equity.
How Do Financial Analysis Tools Help Management and Their Organizations? Financial analysis tools are used for ensuring a handsome amount of profit from

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