Relationship between a Case Analysis and Financial Analysis

A case analysis is a detailed evaluation and assessment of a particular group, field or person. It involves an intense study, collection and measurement of variable relating to the subject matter. For a business, a case analysis shows the previous trends of activities and events of a business for the past years and how they influence its current position. The aim of a case analysis is to determine how the identified variables influence the characteristics of the business under study.

Financial analysis on the other hand is the quantitative study and analysis of an organization’s financial performance. This is done through studying the financial statements which shows the current condition as well as the prospect of the company. The general objective of financial analysis is making decisions concerning the direction of the company. Specific aims may be to make investment decisions, determine current market trends and determining cash generating abilities.

Case analysis deals with general aspects of the company and thus touches on virtually every area of the same. The information from case analysis is linked to results of financial analysis to make more informed decisions. A case analysis will mostly involve the qualitative as well as quantitative elements of a business. Financial analysis is used in case analysis to determine the quantitative elements.

Value of financial statements to a case study

Generally a case analysis will apply financial statements to get information about the various financial decisions of management and their impacts. The contributions of the main financial statements to a case analysis are as follows;

Balance sheet; A balance sheet shows the position of a company at that particular time in terms of company’s assets, liabilities and shareholder’s equity. When carrying out a case analysis, it is advisable to perform a SWOT analysis of the company/business under study. This will help to identify the strengths weaknesses opportunities and the threats a company is faced with. A balance sheet may show the strength in terms of assets a company possesses, weakness in terms of debts, opportunities in terms of assets available to for loans or threats in terms of excess money owed to creditors.

Profit and loss (Income) statement This shows the income generated through the activities that a business is involved in. it shows the revenues, cost of the revenue generating goods/services and the expenses incurred. Through a case analysis, one is able to know the nature of external macro-environment and its effects to a company performance. Such information can be drawn from profit and loss account by checking such items as cost of goods sold and the expenses. This gives a picture of the cost of items in the market and other external trends.

Calculation of financial statements;

The following pro formas are used in preparation of main financial statements;

Trading Profit and loss account for the year ended XXX

$ $ $ Sales XXX Less: Cost of Goods sold-opening stock XXX Add purchases XXX XXX Less: closing stock (XXX) (XXX) Gross profit XXX

Less: expenses Expense 1 XXX Expense 2 XXX XXX Net profit XXX

Balance sheet as at XXX

$ $ $ Fixed assets cost accumulated Net book value depreciation Fixed asset xxx (xxx) xxx Fixed asset 2 xxx (xxx) xxx

Current assets Current asset 1 xxx Current asset 2 xxx xxx

Current liabilities Current liability 1 xxx Current liability 2 xxx (xxx) xxx Net total assets xxx Capital Opening balance xxx Add net profit xxx xxx Less drawings (xxx) xxx

Advantages of a strategic Audit

A strategic audit is done to measure the qualitative and quantitative aspects of a firm’s past performance and henceforth base the information in strategic decision making.

Strategic auditing has the following advantages; Quality Decisions

It leads to a strong conceptual understanding of the decisions which led to a company being where it is. This will help the top management realize the “success decisions” as well as the “failure decisions” of the past and thus reapply or reject those previous decisions.

Evaluate the Internal Controls Strategic auditing will enable the business to assess and evaluate its various internal controls. Part of the strategic audit process is evaluating the value-addition of various processes to the company as a whole. The internal controls are put in place to check and balance these processes. Thus, through strategic auditing, the effectiveness of the controls is measured.

Ensure a strong Portfolio Strategic auditing focuses the management’s attention to the business units as well as markets which are worth investing into. A balanced portfolio is achieved when management capitalize on attractive markets and also wise application of investments from those markets to their various business units.

Risk minimization Businesses undertaking a strategic audit are better shielded against risks associated with uninformed decisions. This is because the audit results include recommendations on what direction to take regarding various processes or undertakings.

The following are some of the needs which are addressed by strategic audit on a business; Informed decisions Information has become a very paramount feature in decision making. The decision maker has to know what is happening within the business and also the surrounding environment. He also needs to assess the relationship of these variables before making decisions. Strategic audit offers such information.

Shareholder’s demands One of business shareholders’ needs is wealth maximization on their investments. They need to be confident that their investments are applied to right sources and activities. Strategic auditing offers information as well as checks on investments and thus minimizing losses that may be incurred though arbitrary investing procedures.

Independent establishment of the state of affairs Any audit process should be tailored in such a way that all the information gathered and presented is objective. To ensure true and fair views of a company’s affairs are presented, audit controls are put in place to counteract subjectivity. Strategic auditing therefore ensures independence of the information gathered and thus 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 effectiveness The effectiveness of a strategic audit is pegged on its independence. An auditing team should not have any member who is in any way related to the client (the person or organization) being audited. This helps attaining the integrity of the information gathered and disbursed.

A strategic audit provides the following; Identifies the current strategy applied on the business and evaluates its effectiveness. It provides information on the external environment and the threats and opportunities in presents to the company. It enable a company to identify and assess its capabilities e.g. in terms of competitiveness in the market. It provides the business with financial indicators and ultimately the financial direction to take.

Relationship Between a Case Analysis and Financial Analysis

A case analysis is a detailed evaluation and assessment of a particular group, field or person. It involves an intense study, collection and measurement of variable relating to the subject matter. For a business, a case analysis shows the previous trends of activities and events of a business for the past years and how they influence its current position. The aim of a case analysis is to determine how the identified variables influence the characteristics of the business under study.

Financial analysis on the other hand is the quantitative study and analysis of an organization’s financial performance. This is done through studying the financial statements which shows the current condition as well as the prospect of the company. The general objective of financial analysis is making decisions concerning the direction of the company. Specific aims may be to make investment decisions, determine current market trends and determining cash generating abilities.

Case analysis deals with general aspects of the company and thus touches on virtually every area of the same. The information from case analysis is linked to results of financial analysis to make more informed decisions. A case analysis will mostly involve the qualitative as well as quantitative elements of a business.

Financial analysis is used in case analysis to determine the quantitative elements.

Value of financial statements to a case study

Generally a case analysis will apply financial statements to get information about the various financial decisions of management and their impacts. The contributions of the main financial statements to a case analysis are as follows;

Balance sheet; A balance sheet shows the position of a company at that particular time in terms of company’s assets, liabilities and shareholder’s equity. When carrying out a case analysis, it is advisable to perform a SWOT analysis of the company/business under study. This will help to identify the strengths weaknesses opportunities and the threats a company is faced with. A balance sheet may show the strength in terms of assets a company possesses, weakness in terms of debts, opportunities in terms of assets available to for loans or threats in terms of excess money owed to creditors.

Profit and loss (Income) statement This shows the income generated through the activities that a business is involved in. it shows the revenues, cost of the revenue generating goods/services and the expenses incurred. Through a case analysis, one is able to know the nature of external macro-environment and its effects to a company performance. Such information can be drawn from profit and loss account by checking such items as cost of goods sold and the expenses. This gives a picture of the cost of items in the market and other external trends.

Calculation of financial statements;

The following pro formas are used in preparation of main financial statements;

Trading Profit and loss account for the year ended XXX $ $ $ Sales XXX Less: Cost of Goods sold-opening stock XXX Add purchases XXX XXX Less: closing stock (XXX) (XXX) Gross profit XXX Less: expenses Expense 1 XXX Expense 2 XXX XXX Net profit XXX

Balance sheet as at XXX

$ $ $ Fixed assets cost accumulated Net book value depreciation Fixed asset xxx (xxx) xxx Fixed asset 2 xxx (xxx) xxx

Current assets Current asset 1 xxx Current asset 2 xxx xxx

Current liabilities Current liability 1 xxx Current liability 2 xxx (xxx) xxx Net total assets xxx Capital Opening balance xxx Add net profit xxx xxx

Less drawings (xxx) xxx

Advantages of a strategic Audit A strategic audit is done to measure the qualitative and quantitative aspects of a firm’s past performance and henceforth base the information in strategic decision making.

Strategic auditing has the following advantages; Quality Decisions It leads to a strong conceptual understanding of the decisions which led to a company being where it is. This will help the top management realize the “success decisions” as well as the “failure decisions” of the past and thus reapply or reject those previous decisions.

Evaluate the Internal Controls Strategic auditing will enable the business to assess and evaluate its various internal controls. Part of the strategic audit process is evaluating the value-addition of various processes to the company as a whole. The internal controls are put in place to check and balance these processes. Thus, through strategic auditing, the effectiveness of the controls is measured.

Ensure a strong Portfolio Strategic auditing focuses the management’s attention to the business units as well as markets which are worth investing into. A balanced portfolio is achieved when management capitalize on attractive markets and also wise application of investments from those markets to their various business units.

Risk minimization Businesses undertaking a strategic audit are better shielded against risks associated with uninformed decisions. This is because the audit results include recommendations on what direction to take regarding various processes or undertakings.

The following are some of the needs which are addressed by strategic audit on a business; Informed decisions Information has become a very paramount feature in decision making. The decision maker has to know what is happening within the business and also the surrounding environment. He also needs to assess the relationship of these variables before making decisions. Strategic audit offers such information.

Shareholder’s demands One of business shareholders’ needs is wealth maximization on their investments. They need to be confident that their investments are applied to right sources and activities. Strategic auditing offers information as well as checks on investments and thus minimizing losses that may be incurred though arbitrary investing procedures.

Independent establishment of the state of affairs Any audit process should be tailored in such a way that all the information gathered and presented is objective. To ensure true and fair views of a company’s affairs are presented, audit controls are put in place to counteract subjectivity. Strategic auditing therefore ensures independence of the information gathered and thus 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 effectiveness The effectiveness of a strategic audit is pegged on its independence. An auditing team should not have any member ho is in any way related to the client (the person or organization) being audited. This helps attaining the integrity of the information gathered and disbursed.

A strategic audit provides the following; Identifies the current strategy applied on the business and evaluates its effectiveness. It provides information on the external environment and the threats and opportunities in presents to the company. It enable a company to identify and assess its capabilities e.g. in terms of competitiveness in the market. It provides the business with financial indicators and ultimately the financial direction to take.

Online Assignment – Your Homework Help

Partner

Mail: homework@onlineassignment.net

Website: www.onlineassignment.net

Live Chat: Available 24*7