Case Analysis and Financial Analysis
Discussion Question
Briefly answer each of the following questions.
- What is the relationship between the case analysis and the financial analysis?
- What is the value of the financial statement to the case analysis?
- How are financial statements calculated?
Business success relies on effective planning, monitoring, and assessing necessities required to meet organizational goals and objectives. This paper discusses the relationship between case and financial analysis, the value of financial statements, and how they are calculated.
The relationship between the case analysis and the financial analysis
Case analysis and financial analysis play a vital role in assessing the business performance and implementing relevant strategies for effective production. The two have a significant relationship. A case analysis concerns assessing or studying a business problem by indicating the previous trends of events and activities and their impact on the current organizational position (Sumedhatuteja, 2013). On the other hand, financial analysis is concerned with evaluating budgets, projects, and finance-related transactions to assess performance. It expresses the organizational financial performance by analyzing the financial statements to indicate the current position and prospects of the company. The two processes happen correspondingly whereby a problem is realized in the organization through case analysis; then, financial statements are analyzed to reveal the cause of that problem (Sumedhatuteja, 2013). Besides, financial analysis is prompted by case analysis, especially when a problem is identified in the business. Such indicates that financial analysis is deemed necessary only when a case analysis identifies a problem. The objectives of these processes include determining the influence of the identified variables on the company’s market position and making investment decisions to implement cash-generating strategies.
The value of the financial statement to the case analysis
Financial statements describing the written records conveying financial performance concerning business activities poise critical value on case analysis. The case analysts rely on financial statements such as balance sheets, cash flow statements, and income statements to assess the overall organizational health by evaluating the business value and financial performance (Palepu et al., 2020). While case analysis concerns the previous activities and how they affect the business, financial statements highlight the activities that elicit high costs with minimum returns and those that provide more returns at minimum costs (Hasanaj & Kuqi, 2019). Financial statements reflect the performance of the business and its financial position, which is crucial to analyzing the impact of the preceding events in the organization. Consequently, the business owners grasp valid information on which activities to emphasize and which ones to abandon based on the business performance as reflected by financial statements. Overly, practical case analysis relies on up-to-date financial statements to make valid conclusions on a business’ performance in regard to its activities.
Calculating financial statements
There are different kinds of financial statements that guide in assessing of organizational performance. Each statement follows a unique formula or process to calculate its value, although the figures interact significantly. For instance, a balance sheet is calculated by adding liabilities and equity summarized as follows;
Assets = Liabilities + Equity
The liabilities, which are the money owed to outside parties by the company, is recorded on the right-hand side of the balance sheet. The equity is the shareholders’ stake in the company, calculated by totaling all the assets and subtracting the total liabilities. Equity is recorded on the left-hand side of the balance sheet (Hasanaj & Kuqi, 2019). Further, the income statement represents a company’s financial performance report over a given accounting period. It is calculated by subtracting expenses from revenues to get the net income.
Net income = Revenues – Expenses
Further, cash flow statements summarize the movement of cash inflows and outflows of the company. The formula for calculation is, therefore:
Cash flow = Operating activities’ cash +(-) Financial activities’ cash +(-) Investing activities’ cash + Balance of beginning cash.
Overly, effective calculation of financial statements requires a proper written record of the company’s cash movements to obtain the values of profits, losses, expenses, and production costs.
References
Hasanaj, P., & Kuqi, B. (2019). Analysis of financial statements. Humanities and Social Science Research, 2(2), p17-p17.
Palepu, K. G., Healy, P. M., Wright, S., Bradbury, M., & Coulton, J. (2020). Business analysis and valuation: Using financial statements. Cengage AU.
Sumedhatuteja, M. (2013). Case study on financial statement analysis–profitability analysis of sail. Asian Journal of Research in Business Economics and Management, 3(3), 46-62.
