DQ2.

What tools can the financial managers use to understand better the
financial situation of the organization?

Answer:
Financial managers review the data of organizations' financial statements and
counsel senior analysts on profitable concepts. For an organization's financial
wellbeing, financial administrators are accountable. They create detailed
analyses, direct strategies, and proposals for their organization's long-term
financial targets (Mahlendorf, Matějka, and Weber, 2017). To be successful as a
financial manager, it is necessary for a large range of skills. To gain from their
empirical knowledge ought to be able to interpret complicated mathematical
processes.

In order to assess the financial position of any organization, financial managers

have three tools.
1- Income Statement ( Profit and loss position)
2- Balance Sheet
3- Statements of Cashflow

1- Income Statement (Profit and loss position)

A declaration of profits through a profit and loss statement indicates the income,
expenditure, and net benefit or loss of an enterprise over a given amount of time.
One of the top three accounting statements, alongside the balance sheet and the
cash flow statement, is prepared for small companies to reflect on their financial
success. Financial managers analyze the income statement in light of sales, cost
of sales, and other expenditure (Choi, 2007). A return reveals the net benefit or
loss produced by a business and demonstrates the costs associated with
receiving the revenue.

The financial managers still utilize the revenue statement to effectively evaluate
how the organization can convert costs into revenue. An income statement will
help assess whether a business can produce long-term gains and decide if
investors should invest in new, costly machinery or wait until the company is in a
stronger place. The financial statement, usually published periodically or every
year, helps corporations to evaluate income and spending patterns over time.

From the hospital's profit and loss statement, the financial managers will able to
identify the revenue received from patients, Out-patients fees, Lab test revenue,
and other related services. These figures will identify the number of patients
availing the hospital services, helping the manager identify the hospital's future
financial sales. From the sales segment's cost, the financial manager was able to
identify the portion of revenue used to purchase the material for patients,
medicines, and other hospital supplies. The hospital's operating cost will include
the yearly expenditure of utilities such as electricity bill, rent, depreciation, and
other expenses required to operate the hospital.

2- Balance Sheet

The financial manager uses a balance sheet for financial reporting in conjunction
with other relevant financial papers, such as a cash balance statement or income
statement, to judge the organization's financial position. A balance sheet for a
financial manager is to explain the business's net value at a specified time to
remind creditors of the company's financial status. The balance sheet offers a
description of the financial position of a business over a specific time. It lists
assets, liabilities, and equity for each cycle to allow stakeholders to recognize the
division.

Balance sheet assertion indicates the firm maintains and owes the company
(assets) and the sum spent in the company (equity). This knowledge is more
useful if balance sheets are clustered together during many successive cycles so
that patterns can be viewed across the numerous products for financial review by
managers (Kulikova, Garyntsev, and Gafieva, 2015). Financial managers may
use several knowledge sub-sets to provide visibility into the organization's short-
term financial position. By matching accumulated subtotal reserves with the new
subtotal liabilities, the managers have access to analyze short-term funds to pay
off the short-term commitments may be calculated.

Financial managers contrast the overall amount of equity present in the

hospital's balance sheet to determine if the resultant indebtedness ratio reveals a
precarious high debt degree that hospital management has obtained to run the
business. Investors tend to review the balance sheet sum of cash to determine
whether there is enough to fund dividends on them if they invest in the hospital
business. A prospective owner of a firm looks at the balance sheet to assess if
certain properties may be disposed of without affecting the underlying enterprise.
The acquirer may equate, for example, the reported inventory balance to revenue,
which may suggest the existence of surplus stock.

3- Statement of Cash Flow

The cash flow statement is presented in a comprehensive package of corporate

financial statements. The cash flow statement's primary aim is to include details
about how an organization produced a certain sum of money, cash sales, and
cash payments. A cash flow statement helps companies and managers analyze
the current cash balance and create projections for its potential cash flows. The
cash flow statement comprises cash of operating activities, investing activities,
and financing activities (Schmidgall, Geller, and Ilvento, 1993).
Cash operating activities show the financial managers regarding the cash-
generating capacity from the core operation of the organization. In order for an
organization to prosper, there has always to be enough capital. The hospitals
need cash to cover the payment of their bills of electricity, pay bank loan
repayments, pay taxes, and acquire new equipment for hospital premises. Such
cash-generating activities suggest the future generation of cash from operations
of operations.

Financial managers review the investing activities as a secondary source of cash

generation within the organization. Any capital and uses of cash by an
investment firm shall be used in investment operations. This category shows the
financial manager related to buying and selling an organization's asset, a loan
made to or received by sellers or customers, or any payments connected with the
merger or acquisition. In brief, facilities, properties, and expenditure adjustments
contribute to investment cash.

Funding cash requires sources of cash by customers or banks as well as cash

transfers to lenders displayed in cash from financing operations. This group
covers dividend distributions, repurchase repayments, and the mortgage
principal's redemption (loans). Thus, as an organization sells bonds, the business
collects cash funds, but the corporation reduces its money when charged to
bondholders. In such a way, financial managers know the organization's long-
term liabilities, obligations, and assets.

Bibliography

1- Choi, W., 2007. Bank Relationships and the Value Relevance of the Income
Statement: Evidence from Income-Statement Conservatism. Journal of
Business Finance & Accounting, [online] 34(7-8), pp.1051-1072. Available
at: https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-
5957.2007.02023.x.
2- Kulikova, L., Garyntsev, A. and Gafieva, G., 2015. The Balance Sheet as
Information Model. Procedia Economics and Finance, [online] 24, pp.339-
343. Available at:
https://www.sciencedirect.com/science/article/pii/S2212567115006759.
3- Ohlendorf, M., Matějka, M. and Weber, J., 2017. Determinants of Financial
Managers' Willingness to Engage in Unethical Pro-Organizational Behavior.
Journal of Management Accounting Research, [online] 30(2), pp.81-104.
Available at: https://meridian.allenpress.com/jmar/article-
abstract/30/2/81/81133.
4- Schmidgall, R., Geller, A., and Ilvento, C., 1993. Financial Analysis Using
the Statement of Cash Flows. Cornell Hotel and Restaurant Administration
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https://journals.sagepub.com/doi/abs/10.1177/001088049303400109.