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In your opinion, of what value are Financial Accounting Reports for use by the Financial Manager in decision making? [20 marks]

Financial Accounting reports are valuable in that they provide relevant information to Managers enabling them to make decisions about the company. To assess the value of the reports we will outline the information provided by the reports and its importance in the decision making process and in aiding the Financial Manager to achieve the wealth maximization objective and in performance assessment. Statement of financial position is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. It essentially shows the financial position of an entity at a given time. The statement of financial position by illustrating the difference between the assets and the liabilities shows the net worth of the business which is basically the value accruing to shareholders. It is valuable in decision making by providing information on how best the business is able to pay its debts. Underwriters also use the information in the balance sheet (working capital) to assess the business' ability to finance its operations. The balance sheet assists the managers of businesses in making decisions regarding purchasing of equipment for the business. Business managers also depend on the balance sheet to analyse whether buying certain equipment on debt is the right move for the business at that time. Business managers need the balance sheet so as to decide the best source of credit for the business at that time.

The income statement is a financial statement that reports the companys revenues and expenses over an interval of time. It shows whether the company was able to generate enough revenue to cover the expenses of running the business. If revenues exceed expenses, then the company reports net income, if it doesnt the company records net loss. In short, the income statement compares revenues and expenses for the current period to assess the companys ability to earn a profit from running its operations. By so doing it highlights areas the Financial needs to focus on in order for the business to earn net income/profit from operations and maximize shareholder wealth. By analysing income statement, the manager is able to devise corrective measures; strategies which the business can use e.g. cost cutting, rationalization or income generation. Consequently a net income leads to success as the business is able to generate a profit. The preparation of income statements on a consistent basis allows a business leader to have three key tools. One tool is the ability to understand how the business has performed during the last period. The second tool is the ability to compare the performance of the business over time. The final tool is to utilize an existing income statement as a planning tool to see how a major business decision would impact earnings.

[Type text] Cashflow statement provides aggregate data regarding all cash inflows a company receives from both its on-going operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. The Cash-flow statement provides an important ingredient of decision-making due to the companys financial stability and viability. The success and survival of every organisation depends on its ability to generate and acquire cash. Cash flow is a concept that we all understand. Companies survive because they have cash, they fail when they dont. The cash flow statement identifies the cash that is flowing in and out of the company. If a company is consistently generating more cash than it is using, the company will be able to increase its dividend, buy back some of its stock, reduce debt, or acquire another company. All of these are perceived to be good for stockholder value.

The statement of stockholders equity is a financial statement that summarizes the changes in stockholders equity over an interval of time. A statement of changes in equity is an important component of financial statements since it explains the composition of equity and how has it changed over the year. Typical information we can get from a statement of changes in equity include:

amount of new share capital issued amount of dividend paid during the year to shareholders the amount by which PPE is valued up or valued down amount of net income earned during the year amount of net income retained during the year any movement in the unrealized loss or gain reserve and reserve for changes in foreign exchange gain or loss, etc. The above information would be used in making financing, investment and dividend decisions. On the other hand, usefulness of Financial Accounting reports in decision making is handicapped by the fact that the information still has to be interpreted and analysed using Accounting ratios namely financial,efficiency,operational ratios among others. These help decision makers to make comparisons and analyse information from accounting reports.

In conclusion, financial accounting reports are key in that they provide the inputs, information that is used by Financial Manager in decision making and in carrying out their roles and functions. However, they are more useful used in conjunction with accounting ratios to enable comparison and analysis. Managers intuition and experience is also necessary in deciphering, interpreting financial accounting reports for use in decision making.

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REFERENCES 1. Introduction to Financial Managemhttp://www.tutor2u.net/business/accounts/finance_management_intro.htment 2. http://www.quickmba.com/accounting/fin/ 3. http://hubpages.com/hub/Goal-of-the-Financial-Manager 4. http://www.sec.gov/investor/pubs/financialnavigating.htm