Chapter 21
Financial Analysis
This chapter explores a number of additional analysis techniques that will give a controller a much more comprehensive set of tools for evaluating a company's various financial illnesses. Many sections contain sample management reports that list not only the financial analysis but also the controller's written evaluation, which is usually the most read and influential of all the information released by the accounting department.
Analyzing Financial Statements
When the controller issues financial statements, the management team probably will not have the time or the financial skill to review them in enough detail to obtain sufficient knowledge about corrective actions to be taken. It is the job of the controller to provide additional information about the financial statements that reveals trends, risks, and opportunities for improvement.
The layout of the typical financial statement shows the current month's performance as well as that of the previous month, plus year-to-date information. Unfortunately, this does not include a sufficient volume of information for management to ascertain any trends in activity or profitability. An additional report is needed to present such information to management. Exhibit 21.1 presents an example of this report, where we itemize both the balance sheet and the income statement for a number of months. By using this format, managers can quickly scan through the information and determine trends in the major categories. ...
