How can final accounts be used for strategic decision making?

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Final accounts are the financial statements that summarize the performance and position of a business at the end of an accounting period. They include the income statement, the balance sheet, and the cash flow statement. Final accounts are not only useful for reporting and compliance purposes, but also for strategic decision making. In this article, you will learn how to use final accounts to analyze your business performance, identify opportunities and challenges, and plan for the future.

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Nourhan Mostafa ????,FMVA?, MBA Finance, CFA II Candidate

Finance Manager @Truth Consultancy (Abu Dhabi)???? 13 YRs Finance Exp.? Senior Financial Analyst ? Financial Consultant…
Divya Katyarmal

Finance & Accounting Specialist| Budgeting| Forecasting | Revenue Recognition Specialist | ASC 606 | Semi qualified…
Emma Mallory

CEO & Founder of Beyond CFO Services | Empowering Businesses with Expert Financial Leadership and Key Infrastructure

1 Performance analysis

One of the main uses of final accounts is to analyze your business performance in terms of profitability, efficiency, liquidity, solvency, and growth. You can use various ratios and indicators to compare your results with your targets, benchmarks, and competitors. For example, you can use the gross profit margin, the return on assets, the current ratio, the debt-to-equity ratio, and the sales growth rate to measure different aspects of your performance. By analyzing your final accounts, you can identify your strengths and weaknesses, and evaluate your progress towards your strategic goals.

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Divya Katyarmal

Finance & Accounting Specialist| Budgeting| Forecasting | Revenue Recognition Specialist | ASC 606 | Semi qualified Chartered Accountant| XERO | QuickBooks | Sage | Net Suite | SAP | Tax |Payroll | USA | UK | Australia |
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Final accounts serve as a comprehensive report card for businesses, providing valuable insights into their financial health and performance 1. A detailed overview of a company's financial position, including its assets, liabilities, income, and expenses. 2. When examining final accounts, key performance indicators such as revenue growth, profit margins, return on investment (ROI), and debt-to-equity ratio can be evaluated. 3. Strategic decisions can be made based on the insights derived from final accounts. For example, if a business is experiencing declining profit margins or high levels of debt relative to equity, management may decide to implement cost-cutting measures or explore alternative financing options.

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2 Opportunity identification

Another use of final accounts is to identify opportunities for improvement and expansion. You can use your final accounts to spot trends, patterns, and anomalies in your revenues, expenses, assets, liabilities, and cash flows. For example, you can use the income statement to identify your most profitable products, services, or segments, and the cash flow statement to identify your sources and uses of cash. By identifying opportunities, you can allocate your resources more effectively, optimize your pricing and cost strategies, and explore new markets or niches.

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3 Challenge recognition

A third use of final accounts is to recognize challenges and risks that may affect your business performance and position. You can use your final accounts to detect issues, problems, and threats in your internal and external environment. For example, you can use the balance sheet to identify your short-term and long-term obligations, and the income statement to identify your variable and fixed costs. By recognizing challenges, you can take corrective actions, mitigate risks, and adapt to changing conditions.

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4 Future planning

A fourth use of final accounts is to plan for the future and set your strategic direction. You can use your final accounts to project your future revenues, expenses, assets, liabilities, and cash flows based on your historical data and assumptions. For example, you can use the income statement to forecast your sales and profits, and the cash flow statement to forecast your cash inflows and outflows. By planning for the future, you can set your targets, budgets, and scenarios, and align your actions with your vision and mission.

Final accounts are more than just numbers and reports. They are valuable tools for strategic decision making. By using final accounts to analyze your performance, identify opportunities, recognize challenges, and plan for the future, you can improve your business performance and position, and achieve your strategic goals.

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Emma Mallory

CEO & Founder of Beyond CFO Services | Empowering Businesses with Expert Financial Leadership and Key Infrastructure
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These are all great insights on using final accounts for strategic decision-making. However, integrating these analyses into a regular monthly close/review process can offer even more value. This approach allows businesses to leverage real-time data for immediate decisions, staying agile and proactive. Regular reviews transform financial reporting from a compliance task to a dynamic strategic tool, ensuring businesses don't just reflect on past performance but actively shape their future.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Nourhan Mostafa ????,FMVA?, MBA Finance, CFA II Candidate

Finance Manager @Truth Consultancy (Abu Dhabi)???? 13 YRs Finance Exp.? Senior Financial Analyst ? Financial Consultant ?Trainer ?? I help companies reg. Financial Analysis, Forecasting, Modeling, Valuation & Budgeting.
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Final accounts provide critical insights into a company's financial health and performance, these insights include: Cost Insight: Managers could learn more about operating costs, administrative expenses, and production costs by using a breakdown of costs in final accounts. Investment Evaluation: Final accounts assess a company's financial stability, influencing decisions made by investors and creditors. Budgeting and Forecasting: historical data is helpful in setting budgets that are realistic and making financial predictions. Final accounts can be utilized for strategic decision-making also through cash flow monitoring, risk Identification, benchmarking, and resource allocation.

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How can final accounts be used for strategic decision making?

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1 Performance analysis

2 Opportunity identification

3 Challenge recognition

4 Future planning

5 Here’s what else to consider

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