Financial Accounting for Managerial Decision Making

FINANCIAL ACCOUNTING
FOR MANAGERIAL DECISION
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
I) Calculations of appropriate measures for underlying EBIT and EBITDA for company each
year...............................................................................................................................................1
II) Usefulness of EBITDA for financial analysis........................................................................2
III) Understanding of revenue recognition criteria.....................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5
APPENDIX......................................................................................................................................6

INTRODUCTION
Financial accounting is referred as specialised branch in accounting keeping record of
financial transactions of the company. Financial accounting involves use of standardized
guidelines for recording, summarizing and presenting the transactions in financial statements and
financial reports like balance sheet and income statements. The present report will reveal about
the importance of financial accounting in decision making. It will also include the analysis based
on the earnings after adjustments.
MAIN BODY
I) Calculations of appropriate measures for underlying EBIT and EBITDA for company each
year.
EBIT
It refers to earning before tax. It is used as an indicator for the profitability of company. It
could be simply arrived at by deducting expenses from its revenues excluding interest and tax.
EBIT is also known as operating profit, operating earnings & profits before interest and taxes. It
is used for analysing performance of company and core operations excluding cost of capital
structures and tax benefits having impact over profit (Bouwens, De Kok and Verriest, 2019). It is
called as operating income because it excludes taxes and interests from the calculations.
EBITDA
It is termed as Earning before interests, taxes, depreciation & amortization. It is used for
measuring overall financial performance of company. It also used as alternative of net income or
simple earnings under few circumstances. It is at many of the times could be misleading as it
strips out costs related to capital investments. Companies do no have legal obligations for
disclosing EBITDA.
There is difference between both EBIT and EBITDA. While calculating EBIT only
figures of taxes and interests are taken into consideration but in the calculation of EBITDA
amounts of interests, taxes, depreciation and amortization are taken into account. The concept of
earnings before interests, taxation, depreciations & amortization involves high calculations as
compared with EBIT. The concept of EBIT is more broadly used by organisations and investors
to assess the performance of company over the period. Both depreciation and amortization are
non cash expenditures as it do not involve any outflow of cash from the business. When these
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