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# Accountancy - Relation Between Case analysis and financial analysis

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### Accountancy - Relation Between Case analysis and financial analysis

1. 1. Relationship between a Case Analysis and Financial AnalysisA case analysis is a detailed evaluation and assessment of aparticular group, field or person. It involves an intense study,collection and measurement of variable relating to the subjectmatter. For a business, a case analysis shows the previous trendsof activities and events of a business for the past years and howthey influence its current position. The aim of a case analysis is todetermine how the identified variables influence thecharacteristics of the business under study.Financial analysis on the other hand is the quantitative study andanalysis of an organization’s financial performance. This is donethrough studying the financial statements which shows thecurrent condition as well as the prospect of the company. Thegeneral objective of financial analysis is making decisionsconcerning the direction of the company. Specific aims may be tomake investment decisions, determine current market trends anddetermining cash generating abilities.Case analysis deals with general aspects of the company and thustouches on virtually every area of the same. The information fromcase analysis is linked to results of financial analysis to make moreinformed decisions. A case analysis will mostly involve thequalitative as well as quantitative elements of a business.Financial analysis is used in case analysis to determine thequantitative elements. Value of financial statements to a case studyGenerally a case analysis will apply financial statements to getinformation about the various financial decisions of managementand their impacts. The contributions of the main financialstatements to a case analysis are as follows;
2. 2. Balance sheet;A balance sheet shows the position of a company at that particulartime in terms of company’s assets, liabilities and shareholder’sequity.When carrying out a case analysis, it is advisable to perform aSWOT analysis of the company/business under study. This willhelp to identify the strengths weaknesses opportunities and thethreats a company is faced with. A balance sheet may show thestrength in terms of assets a company possesses, weakness interms of debts, opportunities in terms of assets available to forloans or threats in terms of excess money owed to creditors.Profit and loss (Income) statementThis shows the income generated through the activities that abusiness is involved in. it shows the revenues, cost of the revenuegenerating goods/services and the expenses incurred.Through a case analysis, one is able to know the nature of externalmacro-environment and its effects to a company performance.Such information can be drawn from profit and loss account bychecking such items as cost of goods sold and the expenses. Thisgives a picture of the cost of items in the market and otherexternal trends. Calculation of financial statements;The following pro formas are used in preparation of mainfinancial statements; Trading Profit and loss account for the year ended XXX\$ \$ \$Sales XXXLess: Cost of Goods sold-opening stock XXXAdd purchases XXX XXXLess: closing stock (XXX) (XXX)Grossprofit XXX
3. 3. Less: expensesExpense 1 XXXExpense 2 XXX XXXNet profit XXX Balance sheet as at XXX\$ \$ \$Fixed assets cost accumulated Net book valuedepreciationFixed asset xxx (xxx) xxxFixed asset 2 xxx (xxx) xxxCurrent assetsCurrent asset 1 xxxCurrent asset 2 xxx xxxCurrent liabilitiesCurrent liability 1 xxxCurrent liability 2 xxx (xxx) xxxNet total assets xxxCapitalOpening balance xxxAdd net profit xxx xxxLess drawings (xxx) xxx Advantages of a strategic AuditA strategic audit is done to measure the qualitative andquantitative aspects of a firm’s past performance and henceforthbase the information in strategic decision making.Strategic auditing has the following advantages;Quality Decisions
4. 4. It leads to a strong conceptual understanding of the decisionswhich led to a company being where it is. This will help the topmanagement realize the “success decisions” as well as the “failuredecisions” of the past and thus reapply or reject those previousdecisions.Evaluate the Internal ControlsStrategic auditing will enable the business to assess and evaluateits various internal controls. Part of the strategic audit process isevaluating the value-addition of various processes to the companyas a whole. The internal controls are put in place to check andbalance these processes. Thus, through strategic auditing, theeffectiveness of the controls is measured.Ensure a strong PortfolioStrategic auditing focuses the management’s attention to thebusiness units as well as markets which are worth investing into.A balanced portfolio is achieved when management capitalize onattractive markets and also wise application of investments fromthose markets to their various business units.Risk minimizationBusinesses undertaking a strategic audit are better shieldedagainst risks associated with uninformed decisions. This isbecause the audit results include recommendations on whatdirection to take regarding various processes or undertakings.The following are some of the needs which are addressed bystrategic audit on a business;Informed decisionsInformation has become a very paramount feature in decisionmaking. The decision maker has to know what is happeningwithin the business and also the surrounding environment. Healso needs to assess the relationship of these variables beforemaking decisions. Strategic audit offers such information.
5. 5. Shareholder’s demandsOne of business shareholders’ needs is wealth maximization ontheir investments. They need to be confident that theirinvestments are applied to right sources and activities. Strategicauditing offers information as well as checks on investments andthus minimizing losses that may be incurred though arbitraryinvesting procedures.Independent establishment of the state of affairsAny audit process should be tailored in such a way that all theinformation gathered and presented is objective. To ensure trueand fair views of a company’s affairs are presented, audit controlsare put in place to counteract subjectivity. Strategic auditingtherefore ensures independence of the information gathered andthus it is enhances reliability of the results. There is a need for a company to be carrying out a strategic audit on a continuous basis. This is because; 1. Continuous strategic auditing ensures that every information used for making decision is timely, sufficient and reliable. This ultimately leads to quality decision making. 2. There would be an improvement in reporting in terms of the timeliness. Continuous auditing provides the management with real-time information and thus improves on the flexibility in decisions and reporting effects of those decisions. 3. It will help the company to take advantage of opportunities as they arise and also take precautionary measures against looming threats to the company.Strategic audit effectivenessThe effectiveness of a strategic audit is pegged on itsindependence. An auditing team should not have any memberwho is in any way related to the client (the person or organization)being audited. This helps attaining the integrity of the informationgathered and disbursed.
6. 6. A strategic audit provides the following;Identifies the current strategy applied on the business andevaluates its effectiveness.It provides information on the external environment and thethreats and opportunities in presents to the company.It enable a company to identify and assess its capabilities e.g. interms of competitiveness in the market.It provides the business with financial indicators and ultimatelythe financial direction to take. Relationship Between a Case Analysis and Financial AnalysisA case analysis is a detailed evaluation and assessment of aparticular group, field or person. It involves an intense study,collection and measurement of variable relating to the subjectmatter. For a business, a case analysis shows the previous trendsof activities and events of a business for the past years and howthey influence its current position. The aim of a case analysis is todetermine how the identified variables influence thecharacteristics of the business under study.Financial analysis on the other hand is the quantitative study andanalysis of an organization’s financial performance. This is donethrough studying the financial statements which shows thecurrent condition as well as the prospect of the company. Thegeneral objective of financial analysis is making decisionsconcerning the direction of the company. Specific aims may be tomake investment decisions, determine current market trends anddetermining cash generating abilities.Case analysis deals with general aspects of the company and thustouches on virtually every area of the same. The information fromcase analysis is linked to results of financial analysis to make moreinformed decisions. A case analysis will mostly involve thequalitative as well as quantitative elements of a business.
7. 7. Financial analysis is used in case analysis to determine thequantitative elements. Value of financial statements to a case studyGenerally a case analysis will apply financial statements to getinformation about the various financial decisions of managementand their impacts. The contributions of the main financialstatements to a case analysis are as follows;Balance sheet;A balance sheet shows the position of a company at that particulartime in terms of company’s assets, liabilities and shareholder’sequity.When carrying out a case analysis, it is advisable to perform aSWOT analysis of the company/business under study. This willhelp to identify the strengths weaknesses opportunities and thethreats a company is faced with. A balance sheet may show thestrength in terms of assets a company possesses, weakness interms of debts, opportunities in terms of assets available to forloans or threats in terms of excess money owed to creditors.Profit and loss (Income) statementThis shows the income generated through the activities that abusiness is involved in. it shows the revenues, cost of the revenuegenerating goods/services and the expenses incurred.Through a case analysis, one is able to know the nature of externalmacro-environment and its effects to a company performance.Such information can be drawn from profit and loss account bychecking such items as cost of goods sold and the expenses. Thisgives a picture of the cost of items in the market and otherexternal trends. Calculation of financial statements;The following pro formas are used in preparation of mainfinancial statements;
8. 8. Trading Profit and loss account for the year ended XXX\$ \$ \$Sales XXXLess: Cost of Goods sold-opening stock XXXAdd purchases XXX XXXLess: closing stock (XXX) (XXX)Grossprofit XXXLess: expensesExpense 1 XXXExpense 2 XXX XXXNet profit XXX Balance sheet as at XXX\$ \$ \$Fixed assets cost accumulated Net book valuedepreciationFixed asset xxx (xxx) xxxFixed asset 2 xxx (xxx) xxxCurrent assetsCurrent asset 1 xxxCurrent asset 2 xxx xxxCurrent liabilitiesCurrent liability 1 xxxCurrent liability 2 xxx (xxx) xxxNet total assets xxxCapitalOpening balance xxxAdd net profit xxx xxx
9. 9. Less drawings (xxx) xxx Advantages of a strategic AuditA strategic audit is done to measure the qualitative andquantitative aspects of a firm’s past performance and henceforthbase the information in strategic decision making.Strategic auditing has the following advantages;Quality DecisionsIt leads to a strong conceptual understanding of the decisionswhich led to a company being where it is. This will help the topmanagement realize the “success decisions” as well as the “failuredecisions” of the past and thus reapply or reject those previousdecisions.Evaluate the Internal ControlsStrategic auditing will enable the business to assess and evaluateits various internal controls. Part of the strategic audit process isevaluating the value-addition of various processes to the companyas a whole. The internal controls are put in place to check andbalance these processes. Thus, through strategic auditing, theeffectiveness of the controls is measured.Ensure a strong PortfolioStrategic auditing focuses the management’s attention to thebusiness units as well as markets which are worth investing into.A balanced portfolio is achieved when management capitalize onattractive markets and also wise application of investments fromthose markets to their various business units.Risk minimizationBusinesses undertaking a strategic audit are better shieldedagainst risks associated with uninformed decisions. This isbecause the audit results include recommendations on whatdirection to take regarding various processes or undertakings.
10. 10. The following are some of the needs which are addressed bystrategic audit on a business;Informed decisionsInformation has become a very paramount feature in decisionmaking. The decision maker has to know what is happeningwithin the business and also the surrounding environment. Healso needs to assess the relationship of these variables beforemaking decisions. Strategic audit offers such information.Shareholder’s demandsOne of business shareholders’ needs is wealth maximization ontheir investments. They need to be confident that theirinvestments are applied to right sources and activities. Strategicauditing offers information as well as checks on investments andthus minimizing losses that may be incurred though arbitraryinvesting procedures.Independent establishment of the state of affairsAny audit process should be tailored in such a way that all theinformation gathered and presented is objective. To ensure trueand fair views of a company’s affairs are presented, audit controlsare put in place to counteract subjectivity. Strategic auditingtherefore ensures independence of the information gathered andthus it is enhances reliability of the results. There is a need for a company to be carrying out a strategic audit on a continuous basis. This is because;1. Continuous strategic auditing ensures that every information used for making decision is timely, sufficient and reliable. This ultimately leads to quality decision making.2. There would be an improvement in reporting in terms of the timeliness. Continuous auditing provides the management with real-time information and thus improves on the flexibility in decisions and reporting effects of those decisions.
11. 11. 3. It will help the company to take advantage of opportunities as they arise and also take precautionary measures against looming threats to the company.Strategic audit effectivenessThe effectiveness of a strategic audit is pegged on itsindependence. An auditing team should not have any member hois in any way related to the client (the person or organization)being audited. This helps attaining the integrity of the informationgathered and disbursed.A strategic audit provides the following;Identifies the current strategy applied on the business andevaluates its effectiveness.It provides information on the external environment and thethreats and opportunities in presents to the company.It enable a company to identify and assess its capabilities e.g. interms of competitiveness in the market.It provides the business with financial indicators and ultimatelythe financial direction to take.
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