Original article from the Flevy business blog can be found here:
http://flevy.com/blog/whats-the-impact-of-ratios-in-financial-analysis/
Financial statement analysis can be referred as a process of understanding the risk and profitability of a company by analyzing reported financial info, especially annual and quarterly reports. In other words, financial statement analysis is a study about accounting ratios among various items included in the balance sheet.
Advantages of Financial Statement Analysis
The different advantages of financial statement analysis are listed below:
The most important benefit if financial statement analysis is that it provides an idea to the investors about deciding on investing their funds in a particular company.
Another advantage of financial statement analysis is that regulatory authorities can ensure the company following the required accounting standards.
Financial statement analysis is helpful to the government agencies in analyzing the taxation owed to the firm.
Above all, the company is able to analyze its own performance over a specific time period.
From the above, it is obvious that only way for financial analysis is ratio analysis.
What is Ratio analysis?
What is the role/Importance of ratio analysis in financial analysis?
What are its advantages?
How it helps out in decision making?
How it helps the auditor in assessment of the risk of material misstatement?
These are some questions the answer of each must be known by every professional, business man and by user of financial statement. Some of you may already know about these. The answer of these questions must be part of professional’s life and business man must know to keep check on the management progress.
In simple words, we can say that ratio analysis is “quantitative analysis of information contained in a company’s financial statements.” In fact, it is critical quantitative analysis.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
Ratio analysis advantages and limitations (Complete Chapter)Syed Mahmood Ali
The aim of this PPT's to provide complete knowledge of Ratio Analysis chapter covering all the formula's for any university student of B.com, M.com, BBA and MBA.
A primer on the 10 variables that every bank investor needs to know, starting with return on equity and finishing with a bank's price-to-book-value ratio.
Introduction to ratio analysis. This slide show is an analysis of accounting ratios to introduce students and those interested in taking accounting as their future career into ratio analysis. It's been simplified and made concise. The writer is a lecturer in engineering and a financial engineer. You can always follow the writer on LinkedIn, Twitter of Facebook. You comments are also welcome for future work.
RATIO ANALYSIS- MEANING
IMPORTANCE OF RATIO ANALYSIS
Ratio Analysis is a important and useful technique of financial analysis.
Helps in judging the financial soundness of an enterprise.
One of the best tools available to financial analyst.
Helps in making a relative study, presenting data in a concise form.
ADVANTAGE OF RATIO ANALYSIS
Useful in analyzing the financial statement
Useful in judging the operating efficiency
Useful in expressing trends
Useful in simplifying accounting figures
Helps in depicting changes
Helps in locating weak spots of the business
Helps in comparison
Effective control
Ignores price level changes
No single standard ratio
May give false result based on incorrect data
Ignores qualitative factors
Different meanings to different terms
It is an analysis of strength and weakness of an organisation by establishing the quantitative relation among the items of Balance Sheet or Income Statement of such an organisation
A primer on the 10 variables that every bank investor needs to know, starting with return on equity and finishing with a bank's price-to-book-value ratio.
Introduction to ratio analysis. This slide show is an analysis of accounting ratios to introduce students and those interested in taking accounting as their future career into ratio analysis. It's been simplified and made concise. The writer is a lecturer in engineering and a financial engineer. You can always follow the writer on LinkedIn, Twitter of Facebook. You comments are also welcome for future work.
RATIO ANALYSIS- MEANING
IMPORTANCE OF RATIO ANALYSIS
Ratio Analysis is a important and useful technique of financial analysis.
Helps in judging the financial soundness of an enterprise.
One of the best tools available to financial analyst.
Helps in making a relative study, presenting data in a concise form.
ADVANTAGE OF RATIO ANALYSIS
Useful in analyzing the financial statement
Useful in judging the operating efficiency
Useful in expressing trends
Useful in simplifying accounting figures
Helps in depicting changes
Helps in locating weak spots of the business
Helps in comparison
Effective control
Ignores price level changes
No single standard ratio
May give false result based on incorrect data
Ignores qualitative factors
Different meanings to different terms
It is an analysis of strength and weakness of an organisation by establishing the quantitative relation among the items of Balance Sheet or Income Statement of such an organisation
Financial Analysis on Recession Period at M&M TractorsProjects Kart
Financial ANalysis (also stated as financial plan analysis or accounting analysis) refers to an assessment of the viability, stability and profitable of a business, sub-business or project. Visit www.projectskart.com for more information. It is performed by professionals World Health Organization prepare reports exploitation ratios that create use of data taken from monetary statements and different reports. These reports area unit typically given to prime management mutually of their bases in creating business selections.
Fortune 500 companies and other leading organizations frequently seek the expertise of global consulting firms, such as McKinsey, BCG, Bain, Deloitte, and Accenture, as well as specialized boutique firms. These firms are valued for their ability to dissect complex business scenarios, offering strategic recommendations that are informed by a vast repository of consulting frameworks, subject matter expertise, benchmark data, best practices, and rich insights gleaned from a history of diverse client engagements.
The case studies presented in this book are a distillation of such professional wisdom and experience. Each case study delves into the specific challenges and competitive situations faced by a variety of organizations across different industries. The analyses are crafted from the viewpoint of consulting teams as they navigate the unique set of questions, uncertainties, strengths, weaknesses, and dynamic conditions particular to each organization.
What you can gain from this whitepaper:
Real-World Challenges, Practical Strategies: Each case study presents real-world business challenges and the strategic maneuvers used to navigate them successfully.
Expert Perspectives: Crafted from the viewpoint of top-tier consultants, you get an insider's look into professional methodologies and decision-making processes.
Diverse Industry Insights: Whether it's finance, tech, retail, manufacturing, or healthcare, gain insights into a variety of sectors and understand how top firms tackle critical issues.
Enhance Your Strategic Acumen: This collection is designed to sharpen your strategic thinking, providing you with tools and frameworks used by the best in the business.
Whether you're at the helm of a corporation or on your path to becoming a consulting expert, "100 Case Studies on Strategy & Transformation" is your essential guide to navigating the complex world of business strategy.
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BENEFITS OF DOCUMENT
Project management adapted to the needs of participants in MBA programs
Course built on the basis of the project management process: Initiating - Planning - Executing - Controlling - Closing.
Course presenting in detail not only the Waterfall approach but also the Agile & Hybrid development approaches.
DOCUMENT DESCRIPTION
This course is a presentation of over 220 pages specially edited to cover the needs of participants in Master of Business Administration - MBA programs.
This course is based on the standard PMBOK edition 6 of the Project Management Institute, it also follows the project management methodology offered by Rita Mulcahy's PMP Exam Prep 10th Edition.
This course refers to case studies chosen among those existing in the book Project Management: A Systems Approach to Planning, Scheduling, and Controlling, Author: Harold Kerzner.
This course contains exercises as well as a practical case of an open space development project.
Below is the table of contents:
• Introduction to project management,
• Pre-Project,
• Project environment,
• Project Management Process,
• Initiating,
• Planning,
• Executing,
• Controlling,
• Closing.
• Introduction to Agility,
• Role of the Project Manager.
Got a question about this presentation? Email us at support@flevy.com.
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Organizations are constantly trying to innovate and, likewise, all industries will eventually be disrupted, as new products, businesses, and industries emerge.
No industry is safe from Disruption. In a 2017 PwC survey of 1,379 CEOs around the world, 60% said their market has already changed or completely reshaped in the past 5 years and over 75% anticipate they would by 2022.
This presentation discusses the 4 Stages of Disruption. Research has found Innovation that eventually leads to Disruption follows a 4-stage evolution:
1. Disruption of Incumbent
2. Rapid and Linear Evolution
3. Appealing Convergence
4. Complete Reimagination
Understanding this 4-stage model will help us understand what design choices to prioritize and when. At any given time, different products and organizations are likely to be at different stages relative to local “end point†of Innovation.
Additional topics discussed include Disruptive vs. Incumbent Dynamics, the Consumer Adoption Curve, Endgame Niche Strategies, among others.
This deck also includes slide templates for you to use in your own business presentations.
Got a question about the product? Email us at flevypro@flevy.com.
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https://flevy.com/browse/flevypro/customer-centric-culture-3831
The use of Internet and other online tools have turned consumers to be more empowered and are now shopping differently. Customers are becoming more demanding and accustomed to getting what they want. With greater access to reviews and online rating, customers are better equipped to switch to new products and services. Consumers now want to buy products and services when, where, and however they like. They expect companies to interact with them seamlessly, in an easy, integrated fashion with very little friction across channels.
As customer expectation continue to evolve – accelerated by the amplifying forces of interconnectivity and technology – markets are becoming increasingly fragmented with demand for greater product variety, more price points, and numerous purchasing and distribution channels.
Companies should be able to adapt to these increasingly disparate demands quickly and at scale. Staying close to the customer experience across an increasingly diverse customer base changing over time is no longer a matter of choice. It is a business imperative and a matter of corporate survival.
The Age of the Customer now calls for companies to be a customer-centric company. Successful ones have discovered that building a customer-centric company depends, first and foremost, on building a Customer-centric Culture.
This framework focuses on the building a Customer-centric Culture utilizing the Corporate Culture Framework. The Corporate Culture Framework is anchored on 4 Primary Cultural Attributes and 4 Secondary Cultural Attributes.
The 4 primary Cultural Attributes are critical in building a Customer-centric Culture.
1. Collective Focus
2. External Orientation
3. Change and Innovation
4. Shared Beliefs
Customer-centric organizations also project 4 secondary Cultural Attributes.
1. Risk and Governance
2. Courage
3. Commitment
4. Inclusion
Companies with a Customer-centric Culture can drive superior financial results and a rich source of competitive advantage.
This deck also includes slide templates for you to use in your own business presentations.
Got a question about the product? Email us at flevypro@flevy.com.
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https://flevy.com/browse/flevypro/business-transformation-success-factors-5561
Business Transformations have become a necessity in the fast-changing technological and competitive business environment. Transformation is characterized by significant and risk-laden restart of a company, with the objective of accomplishing a profound improvement in performance and changing its future course.
Undertaking such arduous effort requires approaching the task in a structured way. Research shows that quite a few of such undertakings are based on anecdotal beliefs instead of being based on empirical data.
This presentation provides a detailed overview of the 5 Factors Critical for achieving the desired results from Business Transformation, based on empirical evidence. These 5 factors are:
1. Cost Management
2. Revenue Growth
3. Long-term Strategy and R&D Investment
4. New, External Leadership
5. Holistic Transformation Programs
Other topics discussed in the presentation include the rationale for Business Transformation, its effects, phases, and the trends that trigger Business Transformation.
The slide deck also includes some slide templates for you to use in your own business presentations.
More Information:
https://flevy.com/browse/flevypro/employee-engagement-measurement-and-improvement-5321
Employee Engagement has emerged as one of the significant pillars on which the Competitive Advantage, Productivity, and Growth of an organization rests. Measuring Employee Engagement is vital in shaping Employee Engagement Strategies that help propel the organization towards growth.
This presentation provides a detailed overview of the Employee Engagement Scorecard, a framework that is quite effective in measuring the existing levels of Employee Engagement and devising strategies based on the individuals’ requirements. The Employee Engagement Scorecard encompasses 5 dimensions or guiding principles:
1. Enhance Employee Satisfaction
2. Promote Employee Identification
3. Enhance Employee Commitment
4. Ensure Employee Loyalty
5. Manage Employee Performance
The slide deck also includes some slide templates for you to use in your own business presentations.
More Information:
https://flevy.com/browse/flevypro/digital-transformation-workforce-digitization-3969
The approaching Age of Automation, together with the impending penetration of digital technology into the labor force, threatens to destabilize crucial aspects of how employees work by. It undermines the stability companies depend on to be agile.
Executives can re-solidify their companies even while making the most of the coming Transformation. There is just a need for executives to adjust their leadership behavior, embrace Digital Workforce Platforms, and deepen their engagement with digitally enabled workers.
This framework provides a good understanding of Workforce Digitization, the Workforce Platforms, and its 4 core benefits (listed below).
1. Collaboration
2. Retention
3. Succession Planning
4. Decision Making
The use of Workforce Platforms can provide companies greater chance to succeed in making markets for talented workers inside their organizations.
This deck also includes slide templates for you to use in your own business presentations.
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https://flevy.com/browse/flevypro/strategic-human-resources-5310
Today's information-based, knowledge intensive, and service-driven economy has forced organizations to make substantial changes to the way they do business. With talented Human Capital now becoming the key strategic resource, the locus of the battle front has shifted. Managers not only have to fight for product markets and technical expertise but also for the hearts and minds of the most talented people in the market.
This presentation discusses the 3 core processes that Human Resources (HR) must adopt to evolve into the strategic HR function that has become the new realm in this age of disruption:
1. Building
2. Linking
3. Bonding
Other topics discussed in the slide deck include the changing perspective and responsibility of top management amidst rapid Business and Digital Transformation; and the shifting role of HR from being an auxiliary function to that of a driver.
The slide deck also includes some slide templates for you to use in your own business presentations.
[Whitepaper] 8 Key Steps of Data Integration: Restructuring Redeployment Asse...Flevy.com Best Practices
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https://flevy.com/browse/flevypro/restructuring-redeployment-assessment-management-5439
More Information:
https://flevy.com/browse/flevypro/restructuring-redeployment-assessment-management-5439
Restructuring becomes essential at some stage in the lifecycle of any organization. In order to emerge triumphant through this tumultuous challenge, it is necessary that the focus remains on the challenges impeding the organization, Strategy Development to tackle the challenges, and prioritizing Strategic Initiatives to deliver radical results that lead the organization to Operational Excellence.
Redeployment is the most significant phase in the Restructuring process. Within Redeployment, the Assessment phase is critical as the revitalization of the whole organization is dependent on correct Assessments and right placement of employees based on those Assessments.
Proper Redeployment Assessment Management is of utmost importance in Restructuring, and it should follow a structured approach, which means managing 5 core areas:
Manage Assessment Team
Manage Anxiety Level of Candidates
Manage Amount of “Deviant Behavior” in the Assessments
Manage Level of Duplicity, Wild Guessing, and Other Forms of Distortion
Manage Amount of Feedback and Its Timing after the Event
Managing 5 core areas ensures smooth implementation of the Redeployment Assessment process, which is a major milestone of the Restructuring project.
The Redeployment Assessment process has to be detailed, accurate, and prompt. Due Diligence in documenting the process, verifying particulars, and balance between Rapidity and Accurateness is essential because:
Organizational requirement to concentrate on post-restructuring environment is intense.
Employees’ urge to swiftly find out about their future is deep-seated.
Objections by employee stakeholders, as a consequence of large-scale retrenchment is high.
Probability of legal recourse by employees is also distinct.
Future Employee Engagement is dependent on fair Assessment and correct placements.
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https://flevy.com/browse/flevypro/strategy-classics-value-disciplines-model-5138
According to Treacy and Wiersema, organizations need to make tough strategic choices in order to become market leaders. Market leaders choose to excel in delivering extraordinarily levels of one particular value to their customers. This way they can remain focused and become the absolute best in a certain value proposition.
Gaining market and Operational Excellence requires that the company's entire Operating Model be adapted in a way this it is aligned with the chosen Value Discipline. A Value Discipline is a unique value that organizations can deliver to a chosen market. The Value Discipline Principle is in line with Porter's Generic Strategies, where Michael Porter describes how companies gain Competitive Advantage by either focusing on low cost, differentiation, or a niche market.
This presentation discusses the Value Disciplines Model and the 3 Value Disciplines organizations must choose from.
1. Operational Excellence
2. Product Leadership
3. Customer Intimacy
If your company has not reached yet any of the Value Disciplines, don't wait longer.
[Whitepaper] The Definitive Guide to Strategic Planning: Here’s What You Need...Flevy.com Best Practices
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https://flevy.com/browse/flevypro/best-practices-in-strategic-planning-2738
For many organizations, this is the time of the year is when Leadership will conduct the annual Strategic Planning process and plan the near-, mid- and long-term strategies.
This article breaks the full Strategic Planning and Execution processes into 3 sections:
Strategic Planning
Strategy Development
Strategy Execution
For each section, we will highlight important concepts core to the topic, as well as direct you to important resources for further understanding.
1. Strategic Planning
Per Wikipedia, we can define Strategic Planning as:
Strategic Planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic Planning became prominent in corporations during the 1960s and remains an important aspect of strategic management. It is executed by strategic planners or strategists, who involve many parties and research sources in their analysis of the organization and its relationship to the environment in which it competes.
Strategic Planning is a crucial process, but often poorly executed, leading to poor translation from Strategy to Execution.
In most organizations, executives complain that their Strategic Planning is overly bureaucratic, insufficiently insightful, and doesn’t accommodate today’s rapidly changing, digital markets. To combat these issues, there are a few best practices we should follow:
Explore Strategy across 3 time horizons.
Encourage productive and stimulating Strategic Dialogue.
Engage a broad, decentralized group of stakeholders.
Let’s dive a little deeper into each of these best practices.
Explore
The 3 time horizons we want to explore can be defined as short term (1-year timeframe), medium term (3–5 years timeframe), and long term (5+ years). Each horizon is uniquely considered and has different objectives.
[Whitepaper] The Definitive Introduction to Strategy Development and Strategy...Flevy.com Best Practices
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https://flevy.com/browse/flevypro/strategy-classics-porters-five-forces-4051
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[Whitepaper] The “Theory of Constraints:” What’s Limiting Your Organization?Flevy.com Best Practices
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https://flevy.com/browse/flevypro/theory-of-constraints-1883
The Theory of Constraints (TOC) is a methodology for identifying the most important limiting factor — i.e. constraint — and systematically improving it. It was developed by Dr. Eliyahu Goldratt, introduced in 1984 book, The Goal.
TOC differs from traditional management views, in that traditional methods seek to make improvements throughout the organization. They divide the organization into smaller, more manageable pieces. The objective, thus, is to maximize the performance of each part, resulting in global improvement.
On the other hand, TOC takes a more focused approach. Instead of improving everywhere, the TOC approach seeks only to improve the few variables (or constraints) that have the largest impact on the organization’s performance. By trying to improve everything everywhere, the risk is that nothing will be improved that really counts. TOC follows the adage “a chain is no stronger than its weakest link.” An interesting phenomenon about chains is that strengthening any link except the weakest one does not improve the strength of the whole chain. Strengthening the weakest link produces an immediate increase in the strength of the whole chain, but only up to the level of the next weakest link.
There are 3 types of constraints that exist in an organization:
Capacity Constraint. This constraint occurs when a resource which cannot provide timely capacity as demanded by the system.
Market Constraint. This is when the amount of customers orders is not sufficient to sustain the required growth of the system.
Time Constraint. This occurs when the response time of the system to the requirement of the market is too long to the extent that it jeopardizes the system’s ability to meet its current commitment to its customers as well as the ability of winning new business.
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https://flevy.com/browse/flevypro/supply-chain-cost-reduction-transportation-5482
Companies looking to improve efficiency and reduce costs can gain significant ground in the Supply Chain Management function by incorporating Lean Management and Six Sigma techniques.
Reason this area has gone under the radar is that companies do not consider Supply Chain to be their core competency.
Not only Warehousing but Transportation also has almost the same potential in terms of opportunities for Cost Reduction and Process Improvement. The approach to Transportation Costs Reduction, though, is different to that of Supply Chain Cost Reduction in Warehousing. This is in part due to the complexity in Transportation Costs, as the costs come from numerous widely distributed individual operations every year.
The approach to Supply Chain Cost Reduction in Transportation encompasses 2 phases:
Understand the Baseline
Identify and Implement Opportunities
[Whitepaper] A Great Leadership Experience: Dr. Rachid Yazami, Inventor of th...Flevy.com Best Practices
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Leadership has become a usual term often misunderstood by many people even those holding the status of a leader. There is no doubt that everyone can be a leader, but not everyone can be a genius leader. Leadership is far limited to prestige, a high status, or to financial abundance; it is neither about authority nor power. Leadership starts when you go beyond the self to serve and empower others.
This article is not for a purpose to redefine leadership with its different aspects, but it is simply about a great example of leadership that mirrors outstanding performance and remarkable human qualities. Dr. Rachid Yazami is an eminent scientist and best known for his research on lithium ion batteries. This technology is used by billions of people worldwide for their cell phones, cameras, tablets, laptops, power tools, and many other devices. Dr. Yazami started his career from scratch to build an empire based on the battery technology. My main interest is not to make a compilation of his achievements and honors, but to tap into his personality traits and characteristics; to discuss the main qualities that enabled him to succeed as a scientist, a researcher, and a leader of his field. My purpose is to understand also the sources of his inspirations and the secret behind his motivations and limitless resilience. His unique path is a textbook of insightful lessons that I aim to summarize and share with you based on a set of interviews with him.
[Whitepaper] Finding It Hard to Manage Conflict at the Workplace? Use the Tho...Flevy.com Best Practices
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https://flevy.com/browse/flevypro/thomas-kilmann-conflict-mode-instrument-tki-3722
A major reason for employees leaving their workplaces is conflict with their bosses. To succeed in today’s fiercely competitive market, organizations need to invest in developing their leadership, such that they further develop their teams by training them on the desired competencies and create a sense of engagement in them.
A big challenge for leaders is getting their employees to believe in the organizational vision. No two personalities have the same viewpoints and aspirations, thus conflict is bound to occur between team members while they interact.
The Thomas-Kilmann Conflict Mode Instrument (TKI), developed by Dr. Ralph H. Kilmann and Dr. Kenneth W. Thomas, is an easy-to-use, online assessment tool to Conflict Management. Human Resources (HR) and Organizational Design (OD) consultants utilize the TKI tool as a mechanism to initiate discussions on differing topics and facilitate in mediation by learning how conflict-handling modes affect personal, group, and organizational dynamics.
Each of us has a predominant conflict style that we use in a particular situation. The Thomas-Kilmann Conflict Mode Instrument provides a basis to measure a person’s behavior in conflict situations, where individuals appear to be unable to get along. The individuals’ behavior in conflict situations encompasses 2 broad dimensions:
Assertiveness
Cooperativeness
These behavior dimensions define 5 predominant conflict handling styles (or modes) that we use while responding to conflict situations:
Competing
Accommodating
Avoiding
Collaborating
Compromising
Got a question about this presentation? Email us at support@flevy.com.
[Whitepaper] Key Account Management: Handling Large Global Accounts the Right...Flevy.com Best Practices
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Large accounts make up a significant portion of business for most B2B companies. Therefore, losing an important customer can have detrimental effects on the organization. The significance of key accounts is urging top B2B companies to revisit their key account management approaches. Additionally, the increasing level of sophistication of the purchase process being adopted — such as, centralized procurement, competitive bidding and auctions, and laborious negotiations — by large buyers is a crucial element for B2B companies to consider to win large accounts.
Studies have shown that large buyers suggest price, product features, and reliability as the most important factors in their purchasing decisions, even more so than sales and service experience. However, detailed analysis of data into the actual purchasing decisions by buyers reveal that suppliers’ service and support capabilities mean a lot to large purchasers — in fact, almost as equal in importance as price. Large buyers often involve senior team members in procurement, which necessitates the need for inclusion of people possessing high-quality management and sales skills while serving key accounts.
With more intensifying sophistication of the procurement process at large businesses in future, the buyers will keep trying to cut costs and gain significant advantage while negotiating with procurement. The suppliers, in turn, can create a win-win situation by providing first-rate key account support and service.
Leading suppliers utilize the 4 drivers of growth to develop best-in-class key account management practices and increase their large contract win ratios. These drivers are actually the 4 imperatives that forerunners undertake to fuel their growth:
Quantified Value Proposition (QVP)
Value-based Selling
Coordinated Account Management
Negotiation Preparation
Got a question about this presentation? Email us at support@flevy.com.
[Whitepaper] Nudge Theory: An Effective Way to Transform Negative BehaviorsFlevy.com Best Practices
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Changing the behaviors of people is the foremost issue with every transformation initiative.
Nudge theory is a novel Change Management model that underscores the importance of understanding the way people think, act, and decide. The model assists in encouraging human imagination and decision making, and transforming negative behaviors and influences on people. The approach helps understand and change human behavior, by analyzing, improving, designing, and offering free choices for people, so that their decisions are more likely to produce helpful outcomes for the others and society in general.
Nudge theory helps reform existing (often extremely unhealthy) choices and influences on people. The theory is quite effective in curtailing resistance and conflict resulting from using autocratic ways to change human behavior. The model promotes indirect encouragement and enablement — by designing choices which encourage positive helpful decisions — and avoids direct enforcement. For instance, playing a ‘room-tidying’ game with a child rather than instructing her/him to tidy the room; improving the availability and visibility of litter bins rather than erecting signs with a warning of fines.
Organizations are increasingly using behavioral economics to optimize their employee and client behavior and well-being. Nudge units or behavioral science teams are being set up in the public and corporate sectors to influence people to address pressing issues. For instance, to increase customer retention by changing the language of support center staff to motivate customers to consider long-term benefits of a product; or to make employees to follow safety procedures by placing posters of watching eyes to remind them of the criticality of the measure.
An effective Nudge initiative necessitates much more than deploying a few experts in heuristics and statistics. The senior leadership should lay out a conducive environment for successful behavioral transformation. This entails assisting the Nudge unit to focus, place it appropriately, create awareness, train and de-bias people, implement effective rewards, and follow high ethical standards.
The leadership needs to think about and prepare to tackle 6 key challenges Nudge units face when implementing effective behavioral transformation initiatives:
What should be the focus of the Nudge unit?
Should the Nudge unit be placed at the headquarters or at the business unit level?
Which resources be made part of the Nudge unit?
What are the critical success factors to consider for the unit?
How to communicate the results and early wins?
What should be done to tackle skepticism and resistance to change?
Got a question about this presentation? Email us at support@flevy.com.
[Whitepaper] Business Model Innovation: Creation of Scalable Business Models ...Flevy.com Best Practices
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Scalability is described as possible meaningful changes in magnitude or capacity. In business terms, it’s the capability of a system to enhance productivity upon resource augmentation. Scalability provides an organization the capabilities to develop compelling value propositions — that are hard to imitate by the rivals — and achieve profitable growth even in the wake of external threats, cut-throat competition, stringent laws, or financial downturns.
Today’s challenging business ecosystems and economic outlook demand from the enterprises to develop novel and Scalable Business Models that are able to leverage positive returns on investments. To accomplish this, leaders need to identify and eradicate any capacity issues, enhance collaboration with existing partners, build new partnerships, or develop platforms to work with their opponents.
Executives should invest in scaling options only when they are sure to boost returns. They have to be quick to exit a business when returns on investment to scale backfire.
5 Patterns of Business Model Scalability
Benchmarking a number of successful organizations reveals that their Business Models were flexible enough to sustain internal and external pressures. Business Model Scalability hinges on aligning the strategic partners and Value Propositions to serve the customers.
To drive Business Model Innovation (BMI), leading organizations consistently display 5 critical patterns of Business Model Scalability:
Operate with multiple distribution channels
Eliminate typical capacity limitations
Outsource capital investments to partners
Allow customers and partners assume multiple roles in the business
Create platform models
Got a question about this presentation? Email us at support@flevy.com.
[Whitepaper] Shareholder Value Traps: How to Evade Them and Focus on Value Cr...Flevy.com Best Practices
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https://flevy.com/browse/flevypro/shareholder-value-traps-5239
Changing industry ecosystems and competition today demand from the organizations to undergo strategic shifts. The purpose of a company is undergoing Business Transformation from serving the interest of shareholders to serving all stakeholders that influence the organization.
Shareholders are often considered the only stakeholders that invest in a business. Senior management needs to be cognizant of the importance of shareholders as well other stakeholders who create value for the organization. They should work on building a collaborative Organizational Culture and paying heed to the welfare of all those groups that play a role in organizational growth.
This warrants a thorough evaluation of all stakeholders, their long-term interests, and Value Creation — or Value Destruction — potential for the organization. But first, this calls for finding answers to the following key questions:
Who creates the most value for the organization?
Who among the stakeholders typically secure the best deals from the organization?
Who is the victim of having the worst deals from the organization?
Who among the stakeholders is potentially untrustworthy?
Are there any intermediaries or stakeholders fulfilling their personal agendas?
Answering these questions is critical for the executives, otherwise they may risk falling into Shareholder Value Traps. Recognizing and understanding stakeholder value traps while the managing stakeholders’ various interests helps executives achieve shared and individual long-term goals. These 5 common traps prevent stakeholders’ interests to get integrated with the interests of the organization and destroy the value of a company if overlooked:
Ignoring cash-flow driving stakeholders while distributing cash
Miscalculating reaction from stakeholders
Supporting under-performing units
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What's the Impact of Ratios in Financial Analysis?
1. What’s the Impact of Ratios in
Financial Analysis?
Contributed by Muhammad Farooq Shami on September 28, 2015 in Corporate Finance
Financial statement analysis can be referred as a process of understanding the risk and
profitability of a company by analyzing reported financial info, especially annual and
quarterly reports. In other words, financial statement analysis is a study about accounting
ratios among various items included in the balance sheet.
Advantages of Financial Statement Analysis
The different advantages of financial statement analysis are listed below:
The most important benefit if financial statement analysis is that it provides an idea to the
investors about deciding on investing their funds in a particular company.
2. Another advantage of financial statement analysis is that regulatory authorities can ensure
the company following the required accounting standards.
Financial statement analysis is helpful to the government agencies in analyzing the taxation
owed to the firm.
Above all, the company is able to analyze its own performance over a specific time period.
From the above, it is obvious that only way for financial analysis is ratio analysis.
What is Ratio analysis?
What is the role/Importance of ratio analysis in financial analysis?
What are its advantages?
How it helps out in decision making?
How it helps the auditor in assessment of the risk of material misstatement?
These are some questions the answer of each must be known by every professional, business
man and by user of financial statement. Some of you may already know about these. The
answer of these questions must be part of professional’s life and business man must know to
keep check on the management progress.
In simple words, we can say that ratio analysis is “quantitative analysis of information
contained in a company’s financial statements.” In fact, it is critical quantitative analysis.
3. Ratio analysis helps to understand about
business:
Its performance and financial position,
Its strengths and weaknesses,
Its opportunities,
Its threats, and
To make reasonable forecasts about its
performance in coming period.
Horizontal analysis (it is analysis on the basis
of previous year) helps to identify its
performance. On the other hand, vertical
analysis helps to identify its strength, weaknesses, and others facts.
Among other functions, one of the most important functions of ratio analysis is to act as
indicators in identifying positive and negative financial trends (fluctuation in its
performance). Trend analysis helps to implement ongoing financial plans and guiding to
give input more rigorously at selected areas. Like either to increase sale or reduce cost etc. It
also helps to make corrections to short-term financial plans. Like if have surplus cash either
to invest in commodities or in financial instruments. Comparability of financial information
4. is one of the ideal approaches to judge business
performance. You can either compare the financial
state of your business against other businesses within
same industry or to compare financial results with
previous year. However it is worth to remember that
comparing numbers side-by-side does not always
provide businesses with a way of determining if their
financial position has become better or worse. Instead,
ratio analysis in accounting allows businesses to place
data in manageable terms in order to better
understand their position. This also causes businesses to break their financial data into
parts so that they can recognize any weaknesses, opportunities or threats. While most ratio
analysis in accounting is used to determine the business’s current position, some ratios can
be used to make financial predictions. The numbers of available financial ratios makes it
important to research and choose option most applicable to your business under the current
scenario.
Ratio analysis use historical data in order to understand the business’s past and current
financial position. Data for ratio analysis contained in your own previous year financial
5. statements and/or financial statement of other businesses in the same industry, which
might be competitor of your business.
By ratio analysis, it may come to notice that business is purchasing more inventory than is
needed, which is preventing it from using cash to finance in the development of other
products. It might also come to notice that business is missing investing opportunities by
holding much cash than its need. Wise business units and industries which make periodical
review of their financial strength, commonly asked by decision makers to tract trends and
notice weaknesses or opportunities immediately.
Remember when conditions do not fluctuate reasonable predictions can be made about the
future. For instance, businesses create a common sized income statement to show all of the
amounts on the income statement as a percentage of sales after it compare these statements
historically for trend analysis. Once a trend has been built, it can predict what will happen
or what can be achieved. Suppose if the selling expenses are increasing consistently by 3.2%
each year, a business can reasonably assume that it will increase by the same ratio and sale
will also increase by the same trend.
6. Purpose of Ratio Analysis
Ratios are worked out to analyze the following aspects
of a business enterprise:
Solvency (Long term and short term)
Profitability (With the help of profitability ratios)
Operational efficiency (As turnover ratios)
Credit standing
Effective utilization of resources
Investment analysis
Remember two main objectives or goals of every
business are, as below:
Solvency ; and
Profitability .
If business fails to manage any of two, then
consequences could bring your business to shut down. As effective these two business
assertions are managed the question of “either your business is going concern or not” going
farther from your mind.
7. Solvency Ratios
Balance sheet is the key to check the solvency of a business unit. These financial ratios focus
on calculating each asset on the balance sheet as a percentage of total assets and each
liability as a percentage of total liabilities plus owner’s equity. Calculating and comparing
for corresponding reporting periods in two consecutive years helps to identify trends such as
decreasing cash and increasing accounts receivable balances, debtor collection period is
reducing. Financial planning goals might then include strengthening your accounts
receivable collection policy and tightening credit-granting guidelines.
Profitability Ratios
Profitability ratios are expressed in %age and show financial performance of your business
in %age not the financial position. Like G.P ratio, CGS ratio, Operating expense ratio, Net
profit ratio etc. A professional, business man and users of financial statement will judge the
causes of losses in variant ways. A professional want to know and to state in report the
causes of loss or causes of profit at lower %age. Business man has concern how cost can be
controlled while the users of the financial statement will take trend analysis to make
decision about investment in company.
8. Turnover and Efficiency
Operating expense and turnover ratios are most critical for helping you to assess how
efficiently your business is utilizing assets and managing its liabilities. Turnover ratios
typically need deeper analysis, with both extraordinarily high and low ratios indicating a
cause for concern. For example, a high inventory turnover ratio indicates a need to review
the inventory budget, because your business could be losing sales due to frequent stock-outs
if stocks not properly managed. Your stock level is linked to your production schedule.
Similarly asset turnover tells you how much efficient your assets.
Cash and Liquidity
Cash and liquidity ratios help determine whether you can afford to invest or you can afford
for long-term business growth. A current asset ratio, Liquid asset ratio and working capital
all are useful for assessing whether your business has enough liquidity to pay for daily
operating and short-term debt expenses, like interest. For instance, a current ratio
compares current assets to current liabilities. A ratio of 2 to1 shows your business is
sufficiently liquid. At this stage, you can initiate for investment in capital market or to take
steps for investments into your financial plan.
9. Auditor’s Concern about Ratio Analysis
Remember auditor has limited concern or usage of ratios for audit purposes only, to issue
report. Auditor is only supposed to check the accuracy and presentation of financial
transactions in correct manner. Auditor uses (ratios) as analytical procedures at three stages
during audit of the financial statements (financial statements are the responsibility of
management not of auditor).
As risk assessment Procedures
Analytical procedures are performed at initial stage of the audit to help the auditor to obtain
an understanding of the entity and to assess the risk of material misstatement. Then audit
procedures can be directed to most risky areas.
As Substantive Procedures
Auditor use analytical procedures as substantive procedures in determining the risk of
material misstatement at assertion level during work on income statement and balance
sheet.
10. At the end of the Audit
Analytical procedures performed at the end of the audit in forming the overall conclusion as
to whether the financial statements are in accordance with the auditor’s initial
understanding or not.
Now, we will take a hypothetical example and will take analysis as an auditor, as business
owner and user of the financial statements.
11.
12. Auditor’s Concerns about Financial Statements via Analytical
Procedures
If we see the progress of entity in the year 20X2 overall results has been changed. Company
made progress from net loss to profit. It may be caused by any of the following two reasons:
Company has performed efficiently.
Company has fraudulently set the financial statement to deceive the users of the financial
statements.
Note that auditor always perform the audit by keeping in mind the professional skepticism
and will focus on cause b as stated above.
Sale has been increased only by 17% and that administrative expenses appear low. So there
are chances that expenses are intensely less stated.
Cost of sales fall by 17% which shows unusual trend. Because sales has been increased by
17% while cost of sales has not been increased proportionately.
GP% is 53% in the year 20X2 while it was 33% in previous year. To identify the reasons of
this change auditor will focus and will extend audit procedures on sale and cost of sale.
13. Selling and distribution expenses have been increased by 42%. It is not increased in
proportion to the sales. There may be misallocation of expenses.
Interest payable has been fallen but at a small ratio. It shows interest has not been paid
during the period. While there is surplus cash. This amount may be overstated or may be a
new loan has been obtained from financial institution. The auditor shall investigate the
reason about failure of non-payment or else.
Investment income is new in this year. It shows there is out flow in cash and cash
equivalents. There is possibility of errors or other income generating assets has not been
disclosed. There is possibility that interest payment factor was ignored while management
kept focus on investment to show progress.
Directors and User of the Financial Statements Analysis
Both will argue in their own point and will be satisfied to see about the increased amount of
sale. They will perceive that organization is performing well and generating more revenue
than previous year.
14. Regarding cost of sales they will predict that management has controlled overheads. But an
owner or knowledgeable investor will investigate about the causes of reduction in cost of
sales. But it is presumed that management has fraudulently prepared and presented the
financial statements because there is reduction in cost.
In the same way both will perceive about Gross profit (GP is increased) as they perceive
about increase in sale.
Selling and distribution expenses have been increased. It will satisfy the owner to ensure
about the management efforts to generate more revenue. More optimistic effort caused to
incur more expense.
Interest payable may be against short term loan. Both will not be worried about the
payment because business has surplus cash and cash equivalents.
Investment income must be in proportion to the investment shown in balance sheet at
bench mark rate. Both will be happy to see the investment income. User of the financial
statement will take decision in positive response.
15. Conclusion
Matter was not to discuss the ratios. Matter was to know about the objectives which are
different of each. But all make decisions with the help of ratio analysis. So think analytically
you will be able to make better decision in your professional career. There are many
businesses (Ltd companies situated in my own city, FSD-PAK) who are suffering from
financial crisis due to inappropriate investment or inappropriate financing decisions.
About Muhammad Farooq Shami
Muhammad Farooq Shami is the Chief Operating Officer of Vega Bobbin Industries. He is an
experienced executive with expertise in tax compliance, financial analysis, finance management, internal
controls, and compliance with audit and assurance standards.
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