Need for financial statement analysis in a computer hardware industry
Table of Contents
- Introduction
- Scope of financial management
- Importance of financial management
- Functions of finance
- Sources of finance
- Specialised financial institutions or development banks
- Understanding financial ratio analysis
- Objectives of analysis of financial statements
- A study on valuation ratios
- Problems of financial statement analysis
- Conclusion
- Bibliography
SummaryFinancial management, as an integral part of overall management is not totally an independent area. It draws heavily on related disciplines and fields of study such as economics, accounting, marketing, production and quantitative methods.
The scope of finance function was treated by the traditional approach in the narrow sense of procurement of funds by corporate enterprises to meet their financial needs. Thus defined, the field of study dealing with finance was treated as encompassing three inter-related aspects of raising and administering resources from outside:
- Institutional arrangement in the form of financial institutions that the funds are raised from the capital market and their procedural aspects.
- The financial instruments through which the funds re raised from the capital market and their procedural aspects.
- Legal and accounting relationship between a firm and its sources of funds.
The traditional approach to the scope of finance functions evolved during the 1920s and 1930s and dominated academic thinking during 40s and through the early 50s. But, it suffered from serious drawbacks.
Firstly, it focused on financing problems of corporate enterprises. To that extent, the scope was confined only to a segment of the industrial enterprises, as non-corporate organizations lay outside its scope.
Secondly, the traditional treatment was found to have a lacuna to the extent that the focus was on long term financing. Its natural implication was that the issues involved in working capital management were not in the purview of the finance function.
Last but not the least, the traditional treatment was outside looking in approach, that is, from the view point of suppliers of funds such as investors, investment bankers an so on. No consideration was given to the view point of those who had take internal finance decisions that is insider looking out was completely ignored. Hence the traditional approach has now been discarded.
The scope of finance function was treated by the traditional approach in the narrow sense of procurement of funds by corporate enterprises to meet their financial needs. Thus defined, the field of study dealing with finance was treated as encompassing three inter-related aspects of raising and administering resources from outside:
- Institutional arrangement in the form of financial institutions that the funds are raised from the capital market and their procedural aspects.
- The financial instruments through which the funds re raised from the capital market and their procedural aspects.
- Legal and accounting relationship between a firm and its sources of funds.
The traditional approach to the scope of finance functions evolved during the 1920s and 1930s and dominated academic thinking during 40s and through the early 50s. But, it suffered from serious drawbacks.
Firstly, it focused on financing problems of corporate enterprises. To that extent, the scope was confined only to a segment of the industrial enterprises, as non-corporate organizations lay outside its scope.
Secondly, the traditional treatment was found to have a lacuna to the extent that the focus was on long term financing. Its natural implication was that the issues involved in working capital management were not in the purview of the finance function.
Last but not the least, the traditional treatment was outside looking in approach, that is, from the view point of suppliers of funds such as investors, investment bankers an so on. No consideration was given to the view point of those who had take internal finance decisions that is insider looking out was completely ignored. Hence the traditional approach has now been discarded.
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