1. a. How do analysts approach FSA? How is it different from the way that manage
ID: 449062 • Letter: 1
Question
1.
a. How do analysts approach FSA? How is it different from the way that managers approach FSA? Are there any additional differences in the way that other stakeholders approach FSA? Why do these differences exist?
b. How do controllers approach FSA? What do they focus on? How do they use FSA to manage the capital structure and cash position of the firm? How are they able to use FSA to meet and monitor the fulfillment of corporate objectives?
c. Discuss the differences in the reports prepared for upper management compared to the reports prepared for lower-level managers. Why do these differences exist?
d. The sales forecast is often the starting point of the budgeting process. Identify and discuss key assumptions that are made in the creation of the sales forecast. How would you defend these assumptions when presenting your budget to the budget committee?
Explanation / Answer
(a)
Analysts approach the financial statement analysis in a comparison manner. Most of the financial analysts are independent of the individual companies and are interested in comparing the different financial analysis of companies. The goal of most of the financial analysts is to determine the financial performance of the industry as whole by critically analyzing each company’s financial statements analysis.
Managers have a different approach to the financial statements analysis as they are more concerned with how their individual company is performing rather than the performance of the industry. The managers are therefore internal oriented when it comes to financial statements analysis.
Other stakeholders also have different ways of approaching financial statements analysis. The investors are more concerned with the profitability of the company while the creditors are more concerned with the liquidity position of the company. These differences exist due to the different goals the various stakeholders have.
(b)
The controllers also have interest in the financial statements analysis and they critically review not only the financial statements published by the various listed companies but also focus on how the statements have been analyzed. The securities exchange regulator focus on the financial statements and analysis compliance on the stipulated acts and regulations and also ensures that they comply with the accounting standards and policies.
The controller manage the capital structure and cash position of the firm through application of regulations that requires firms to comply with certain positions such as the amount of debt that a company can hold. Through these regulations, the controller manages the capital structure of firms.
Each publicly traded firm has the responsibility of publishing the financial statements and analysis. The regulator thus maintains corporate objectives by ensuring that the information gets to the shareholders who are not involved with the daily operations of the company. The controller thus acts as the watch dog for the shareholders and other stakeholders.
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