Fundamentals of Management Analysis


Questions: Aims and objectives of management analysis. The role and importance of management analysis. The relationship of financial and management analysis. Sources of information management analysis.

Goals and objectives of management analysis

 

Management analysis is an essential component of management accounting. Division accounting for the financial (forming information to external users) and management (data which are mainly intended for managers of the organization) gives reason to apply a similar approach to the classification of economic analysis. Management analysis, as domestic economic analysis, aimed at assessing both past and future economic results of structural units of the organization. Management analysis integrates three types of internal analysis - retrospective and prospective operational, each of which tend to solve their own problems. Internal prospective analysis is divided into short-term and strategic.

The objective of the internal retrospective analysis is to determine the effectiveness of production and economic activity by comparing the costs and benefits for different accounting objects and in different time intervals.

Operational analysis of the problem:

- Rapid assessment of short-term changes in the state of an object in order to show how the actual situation differs from the desired;

- Identifying opportunities for bringing the actual state of the object to the desired.

The task of internal foresight - preparation of information useful for decision-making aimed at the future.

Management analysis is not only a kind of economic analysis, but also one of the elements of management accounting.

Object management analyses are the results of past and future functioning of business segments.

Management analysis can be considered as an intermediate stage management of the organization. With the help of management analysis can assess the degree of use of material, labor and financial resources, to build short-term forecasts of behavior costs at different levels of production.

Expected economic analysis is based on the behavior of costs depending on the change of business activity of the organization. Management analysis is to accumulate not only quantitative but also qualitative information. If you have any need for vneuchetnoy information (data about the price of competing products, the anticipated demand for the products of alternative price) use the results of market research, public opinion polls.

 

The role and importance of management analysis

 

Management analysis as a branch of economic analysis and an integral part of management accounting is the main goal - the study of the past, current and future activities of the business segments, based on the prediction of revenues, expenditures and financial results in selecting segments of a particular business tactics. Management analysis as an independent element of management accounting optimizes the ratio of "cost-income" during the preliminary management of the business segments. The process of business management involves the production of not only short-term but also long-term strategic decisions. A variety of strategic (long-term) analysis is an investment analysis. Investments are an essential condition for sustained economic development of both individual companies and society as a whole. In the current economic conditions make decisions in the field of investment and finance, can not occur in the absence of preliminary management analysis. This is facilitated by the rapidly changing market conditions, fierce competition, accompanied by an active struggle for the buyer.

The results of strategic analysis have a major impact on the future position of the organization, and therefore need a thorough preliminary study of the prospects for the organization's activities in the relevant economic environment.

 

The relationship of financial and management analysis

 

Financial analysis - part of the overall economic analysis. It consists of closely interrelated areas: financial analysis and production management analysis. Classification analysis on financial and management due to the existing practice of sharing the financial and management accounting.

Financial analysis includes external financial analysis according to public financial reporting and internal financial analysis according to accounting and reporting.

Management analysis consists of an internal financial analysis according to the accounting and reporting, and analysis of farm production according to management accounting.

Financial analysis, which is based on data from public financial statements, taking on the traits of the external analysis as its study is carried out by a partner company, interested in his information. In reading public statements are a limited amount of information about the activities of a business entity that does not allow to reliably determine all aspects of its activities.

Characteristic features of external financial analysis:

- The diversity of the subjects of analysis - users of information about the activities of the enterprise;

- Distinguish the goals and interests of the subjects of analysis;

- The use of standard techniques, accounting and reporting standards;

- Focus only on the analysis of public external reporting enterprise;

- Maximum openness of the analysis results to the user information on the work of the enterprise.

Partner’s enterprises carry out external financial analysis in the following areas:

- Analysis of financial stability, balance sheet liquidity and solvency;

- Analysis of the effectiveness of the use of assets, equity and debt;

- The study of absolute earnings;

- Analysis of the relative rates of return;

- An overall assessment of the financial condition of the company.

When conducting internal financial analysis as a source of information other than public financial statements are used synthetic accounting data (logs, orders, general ledger), normative and planned information, which is available at the facility. The main content of the analysis may be complemented by other aspects that are of fundamental importance for the company's management, such as the study of the status of stocks, the analysis of the dynamics of accounts receivable and payable, long-term and short-term investments.

Specific features of management analysis are:

- Focus the analysis on the interests of the company's management;

- The use of a maximum amount of information for analysis;

- The complexity of the analysis, that is, the study of all aspects of the enterprise;

- Interaction of planning, accounting and analysis for decision-making;

- Maximum closeness of the analysis to preserve trade secrets.

The main issue for the understanding of the content and effectiveness of the financial analysis is the concept of entrepreneurship as a system making use of resources for profit. Profit as a form of income of the enterprise acts as the final financial result of creating the necessary conditions for the preservation of its economic viability and further development. Regardless of the scope of the implementation of the business's ultimate goal remains unchanged. All variety of management decisions to achieve the key objectives of any business can be expressed in three aspects:

- Decisions on investment of capital;

- Activities carried out with the help of this capital;

- Assess the cost effectiveness of ongoing activities (financial transactions, investment projects).

Timely and qualitative study of financial and investment decisions characterizes the content of complex analysis in any area of business.

 

Sources of information management analysis

 

Effectiveness of management analysis largely depends on its information systems. All data sources for the analysis are divided into regulatory and planning, accounting and vneuchetnye.

The sources of information of planned regulatory nature include all types of plans that are developed in the enterprise (prospective, current, operational, technological maps), as well as regulatory materials, estimates, price lists, project tasks.

Sources of information accounting nature - all data that contain documents of accounting, statistical and operational records, as well as all kinds of statements, primary records.

The leading role in the information support analysis belongs accounting and reporting, which best reflects the economic phenomena, processes and their results. Timely and complete analysis of the data contained in the primary and consolidated accounting records and reports, ensure that the necessary corrective measures to achieve the best results management.

These statistics and reports of the company are used for in-depth study of trends in key indicators and factors shaping their level. The study of macroeconomic statistics in general, industry needs to assess the external conditions of functioning of the enterprise and the degree of economic and financial risks.

Operational accounting and reporting contribute to more timely than statistics or accounting analysis to ensure the necessary data (for example, the production and shipment of products, state-of inventories) and thereby create conditions for improving the efficiency of analytical studies.

Records are the economic passport of the enterprise, where they can accumulate data on the results of operations for several years. Much detail indicators contained in the passport, allows for numerous studies of the dynamics, identify trends and patterns of economic development of the enterprise.

With the expansion of computer technology, new machine sources of information, and include data that is contained in the computer's memory, floppy disks and are issued in the form of various computer program.

Sources of information that are out of the account - it documents regulating economic activity, as well as data describing the changes in the external operating environment of the enterprise (material special surveys of production conditions in the workplace, information on major counterparties of the company). For example, the vendor data needed to predict their reliability and price policy. Customer information needed to characterize their current and long-term solvency. Also used data on the state of the market of material resources (market size, the level and dynamics of prices for certain types of resources). Information about the state of the capital market (the refinancing rate, the official foreign exchange rates, rates of commercial banks on loans and deposits), data on the state of the stock market (bid and offer prices for the main types of securities, transaction volumes and prices for the main types of equity instruments, consolidated index of price movements in the stock market) are also used in the management review for conducting analytical studies.

 

Questions for self-control

1. What is the main purpose of management analysis.

2. What are the main objectives of management analysis.

3. What is the role and importance of management analysis in a market economy?

4. What is the relationship of financial and management analysis?

5. What are the main sources of information for management analysis.