This document explores the role of finance in leadership and management. It explains the users interested in financial information, ways of communication, types of financial data, and accounting concepts. The document provides insights into the importance of financial information for decision making in a contemporary organization.
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FINANCE IN LEADERSHIP AND MANAGEMENT
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Table of Contents INTRODUCTION...........................................................................................................................3 1. Explaining several users who are interested in the financial information of an enterprise and the reason behind their interest 400.............................................................................................3 2. Critically analysing the ways in which financial information is been communicated to all the stakeholders 400.....................................................................................................................4 3. Explaining and determining various types of the financial data and an information that is needed for the purpose of decision making in a contemporary organization 500.......................5 4. Evaluating and comparing different final reports and discussion an appropriate accounting concepts and the framework that is been used in producing it.700.............................................6 REFERENCES................................................................................................................................1
1. Explaining several users who are interested in the financial information of an enterprise and the reason behind their interest Company management- The team requires to understand cash flows, profitability and the liquidity of an enterprise each month in order to makes an operational and the financing decisions for the Anglo American company. Competitors- They act as the main users of the final reports of the company for the purpose of evaluating its financial state (Voss, 2019). Through this information, competitor could be able to gain effective strategies for achieving competitive edge. Customers- They review the financial information at the time of considering or deciding which of the supplier in selecting for the major contract. This helps in judging a financial ability of the supplier for remaining in the business for longer period to facilitate mandated goods and the services in a contract. Employees- An organization might elect in providing its final reports to an employees in addition with the detailed description of the document. This is required by the employees for assessing the performance of an enterprise and is used for increasing level of an employee involvement with gaining an understanding of the company's business. Governments- They are also seen as the major users of the final reports as they review the financial statements of Anglo American company for determining that it is paying off its all the tax obligation and is complying with all standards that are provided by IFRS and GAAP. Investor analyst- An analyst shows a keen interest in the financial statements for deciding that whether Anglo American Firm could be recommended to the clients in respect of making the investment in an entity's securities. Investors- They requires financial information as they are counted as owners of the company and desire for understanding or assessing the performance of the investment made by them (Lakis and MasiuleviÄŤius,2017). This also helps them in making the suitable decisions relating to withdrawing or making further investment. Lenders- An institution that is providing the loan to the company needs financial information for estimating an ability of borrower in paying back all the borrowed funds and an interest related payments.
2. Critically analysing the ways in which financial information is been communicated to all the stakeholders Specifically, financial information is been communicated to the different stakeholders by way of preparing the financial statements. Framing of final reports includes the statement of the financialinformation,incomestatement,cashflowstatementandthestatementofthe shareholders equity (Prasad and Chand,2017). Ideally, each and every statement comprised of the set of a financial information that assist an organizational stakeholders in making the decisions that are most suitable and best for Anglo American corporation. Balance sheet is the statement that list down the liabilities, assets and an owners equity of an organization. The income statement reflects an information relating to the income and the losses of business whereas cash flow statement depicts movement of the cash and the balance of cash and cash equivalent of the firm. In such statements, management facilitates an overview involving all the judgements in relation to operations of Anglo American and any of the concerns over a future. Financialstatementsare seen asthe ventralfeature through which an accounting information could be communicated to all the organizational stakeholders. It is seen as helpful in thinking of such statements as the models of the business organization because it attempts in showing a business in the financial terms. These statements gives an overall picture regarding an income, assets, liabilities, expenses and the shareholders equities or the reserves. Final reports facilitates a useful information in context of credit and the investment decisions and also in analysing the prospects of the cash flow (Kulikova,Gubaidullina and Elsukova,2016). It provides an information about the resources of Anglo American, Claims to such resources and the changes in resources. Moreover, by using the ratio analysis tool also, a firm could be able to convey the financial information to all types of the users. This tool helps in making the comparison of the financial performance and the position of an entity in the present with that of the previous periods (Gulin, Hladika and Mićin, 2017). There are various types of the accounting ratios that includes profitability ratios, liquidity ratios, efficiency ratios,solvency and the leverage ratios which acts as the true measure through which a financial information can be assessed of Anglo American.
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3. Explaining and determining various types of the financial data and an information that is needed for the purpose of decision making in a contemporary organization Financial metrics or data act as the essential tools in measuring the performance of the business. Financial data of Anglo American supports in establishing the strategic financial goals whichareeffectivelyintegratedandcoordinatedintoanorganization'sfinancialand the operational management system (GarcĂa-Sánchez and et.al., 2017). There are some major financial data that needs to be included in the process for developing the strategy of the business and in taking effective decisions are as follows- Availability of net cash- It is the most important measure that states the financial fitness of an entity. It shows an efficiency level through which a company is using its financial resources for generating more and more cash for the new investments. It refers to an amount of the cash available after deducting an investments and an increase in the working capital from an entity's operating level of cash flows (Minnis and Sutherland, 2017). This data is used in making a plan for the major capital disbursements or an advancement of the current projects. Revenuegrowth-Thetiming,qualityandthequantityoftherevenuesarethe determinates of the potential level of the business for achieving success in the long run and is seen as the fundamental concern in the strategic planning. The calculation of the revenue growth subtracts the company's revenue for the last period from a revenue of the current period. Profits- It is important for the company to have a healthy gross margin of the profits that enables in absorbing the negative effects towards the COGS and the revenues without affecting by the risk of an inability in paying for the routine expenses. Operating margin acts as the determinate of an ability of the firm in generating the profits, irrespective of the fact that Anglo American finances their operations either through debt or an equity (Berger, Minnis and Sutherland,2017). Net margin measures the remaining profits that could reinvested into the company or distributing to their shareholders as the dividends. Economic value added- This acts as the contributor of the bottom-line but one which is seen as contingent on the risk adjustment. It enables in making the timely decisions about an expansion of the business in increasing an economic value of the business. It highlights the required corrective actions in the areas that diminishes its value. This is been computed through subtracting an operating capital cost from the net income. It helps the firm in setting up their
business goals in adding up for an economic value used for assessing value contributions and in improving process of the resource allocation. Growth indices- It is the data that shows the growth of an entity's sales and the market share (Bailey and Samuels, 2018). It indicates financial acceptability of a trade-offs that is made for the growth in respect of the reduced profit ratios, cash flow and the ROI. It is important for the business to set the strategic goals with an improvement in the growth index. Operational efficiency- It is the measure regarding the way in which the resources of the business are efficiently used. Lower profits results in the poor value of operational efficiency and the areas included in such evaluation involves receivable turnover that measures an efficiency level in managing the credit accounts of the customers. Liquidity- Financial data relating to current assets and the liabilities is been required under the liquidity analysis which helps in examining an ability for generating sufficient cash in paying all the cash expenses. 4. Evaluating and comparing different final reports and discussion an appropriate accounting concepts and the framework that is been used in producing it. Balance sheetIncome statementCash flow statement It is the statement that shows thedetailsregardingassets andliabilitiesofAnglo American. This statement reflects revenues andtheexpensesthatare incurred in running the business. It means the statement that records for the cash inflows and the outflows of Anglo American. Thisfinancialstatement presents the financial position of Anglo American. Incomestatementdepictsthe financial performance of Anglo Americanbyviewingthe profitability earned by it. This statement tells about the cashpositionofAnglo American. Theassetsarebeen categorised into two segments thatincludescurrentassets andthefixedassets (Lemishovska,2018). However,liabilitysection Itincludesrevenue,other income,costofgoodssold, operating expenses with interest and tax expenses. Itisthestatementthatis dividedintothreemajor activities of the business that isoperatingactivity, investing and the financing activity.
involvescurrentliabilities, non-current liabilities and the shareholders equity. Throughtheuseofthis statement, liquidity, efficiency and the leverage ratios can be computedinanappropriate manner. By using an Income statement of AngloAmerican,profitability, turnover and leverage ratio are been evaluated (Gulin,Hladika and Mićin,2017). This shows the information about the profits earnedbythecompanywith respect to its sales after meeting off all its cost, expenses and the taxes. With the use of cash flow statement,theoperating ratio,investmenttocash flowratioandfinancing capitaltocashflowration could be accounted. Different types of the accounting concepts used by the firm in preparing for its final reports that are as follows- Money measurement concept- This concept states that only such items are recorded in thefinancialstatementswhicharecapableofgettingexpressedinthemonetaryterms (Accounting concepts,2018). On the other side, all those resources that are not capable of being measured in monetary value are been excluded from the balance sheet. Historic cost- It means that assets in the balance sheet must be recorded on its historic cost that is the original cost and not on the market value. Going concern- This principle holds that Anglo American will be continuing its business operations for the definite period of time and the foreseeable future. It means that there is no any intention or the need for selling off assets of business. Business entity principle- According to this concept, the owners and the business are been treated as distinct and the separate (Minnis and Sutherland, 2017). This means that owners and the organization are treated as separate at the time of making the final reports. Dual aspect- It means that each and every transaction in the business has both aspects that is debit and credit which would affect the balance sheet.
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prudence concept- It is an accounting concept which states that anticipate for all the possible losses and recognition of the profits in case it is realized. This helps the firm in making for all the provisions so that any uncertainty occurred in the future could be met adequately. Accrual concept- As per this accounting concept, recognition of the revenue is to be made only when it is earned andthe expenses are recognized when the assets are been consumed. Auditors would be certifying only such financial statements that has been prepared by following this concept. Matching concept- Under this the expenses in relation to the revenue must be recognized within the same period in which the revenues are been recognized (Bailey and Samuels,2018). By this way, there does not exist any deferral in recognition of an expenses into the later period of reporting so that at the time of viewing the final reports, it could assured that all the aspects of the transaction has been recorded at same time. Materiality concept- Accounting transactions referring to this concept must be recorded when not doing it may alter decisions made by the users of Anglo American financial statements.
REFERENCES Books and journals Bailey, W. J. and Samuels, J. A., 2018. Analyzing Two Investments—An Instructional Case to Introduce Basic Financial Accounting Concepts.Issues in Accounting Education Teaching Notes.33(4). pp.18-29. Berger, P. G., Minnis, M. and Sutherland, A., 2017. Commercial lending concentration and bank expertise:Evidencefromborrowerfinancialstatements.JournalofAccountingand Economics.64(2-3). pp.253-277. GarcĂa-Sánchez, F. and et.al., 2017. KBS4FIA: Leveraging advanced knowledge-based systems for financial information analysis.Procesamiento del Lenguaje Natural.59.pp.145-148. Gulin, D., Hladika, M. and Mićin, M., 2017. Application of the Fair Value Concept in Function of Achievement the Objectives of Financial Statement Users. InCountry Experiences in EconomicDevelopment,ManagementandEntrepreneurship(pp.553-570).Springer, Cham. Kulikova, L. I., Gubaidullina, A. R. and Elsukova, T. V., 2016. Disclosure of the risks of the organization influencing decision making by users of financial reporting.International Business Management.10(22). pp.5280-5285. Lakis, V. and MasiuleviÄŤius, A., 2017. ACCEPTABLE AUDIT MATERIALITY FOR USERS OF FINANCIAL STATEMENTS.Journal of Management.2(31). Lemishovska, O., 2018. Financial Results: Retrospective Analysis of Bookkeeping Practice, Accounting Concepts and Methods.Accounting and Finance.(3). pp.45-53. Minnis, M. and Sutherland, A., 2017. Financial statements as monitoring mechanisms: Evidence from small commercial loans.Journal of Accounting Research.55(1). pp.197-233. Prasad, P. and Chand, P., 2017. The changing face of the auditor's report: implications for suppliers and users of financial statements.Australian Accounting Review.27(4). pp.348- 367. Voss, G., 2019. Information and Strategic Aspects of Financial Statements in the Assessment of their Users.Folia Oeconomica Stetinensia.19(2). pp.176-187. Online Accountingconcepts.2018.[Online].Availablethrough: <https://www.accountingtools.com/articles/basic-accounting-concepts.html>
Appendix
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