MA
Concepts of Management Accounting- Article review and discussion
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- Annotated bibliography
According to Klammer (1973), the techniques used in capital budgeting can be associated with the overall performance in a firm. As per the study, sophisticated capital budgeting techniques can improve the way of doing business. The article has been published in the journal of “The Accounting Review,” and the article has been reviewed by anonymous authors. The purpose of capital budgeting is to derive optimum solutions to the issues prevalent in the firm. The author has conducted both secondary and primary research to understand the association. Commonly accepted techniques, including payback, have been in practice. The study has been undertaken to understand the degree of association between the usage of sophisticated tools and techniques and a firm’s performance. The existing relationship between capital budgeting procedures and performance can direct the future of the firm. Investment related decisions can be taken. In order to achieve the purpose of the study, the researchers have created a questionnaire and used the regression analysis method to analyze the findings. It has been inferred that steps used in capital budgeting can derive the outcome or performance of the firm. At first, risks prevail; however, during project implementation, cash flow estimation should be accurate to prevent the risk.
As opined by Filbeck (2000), financial management and financial analysis are related. The paper has been published in the “Family Business Review,” and both the authors are a professor of Finance. Hence, the credibility of the source is evident. In this article, the researchers have explored a range of financial management techniques in the context of a family business. The survey has been conducted on techniques related to risk adjustment as well as capital management. These are vital techniques of financial analysis. The researchers have found that a large family business consists of non-family members as well as the board of directors. These members are in a position of a decision-making role in comparison to smaller family businesses. The small businesses are less likely to use or employ sophisticated techniques of financial management. Furthermore, it has been found that financial analysts are the ones who make recommendations by assessing the financial data of a company. Large companies are more likely to use a range of financial analysis techniques such as cash flow, rates of return, variance, vertical, horizontal, efficiency, and valuation. The large family businesses are more likely to ensure the usage of best practices because handling large data sets can be a challenge for the firm.
- Discussion on the articles
Based on the article on capital budgeting, it has been learned that the future survival of a firm depends on the techniques used in capital budgeting. If organizations fail to understand the compatibility between firm characteristics and the procedures of capital budgeting, it is impossible to ensure its survival (Haka, Gordon & Pinches, 1985). In order to select the best procedure for capital budgeting, it is necessary to understand the type of investment required for the successful completion of a project. Similarly, the external environment also plays a critical role in the budgeting procedures. Secondly, a firm’s structure, including reward systems and information systems, could be vital for decision making as well. It can be inferred that a firm’s performance would decline if the critical characteristics of the firm are not in sync with the budgeting procedures.
Similarly, an analysis of the article on financial management and analysis suggests that within both small and large-sized firms, financial analysts play a key role. From analyzing historical data to making projections regarding the future performance of the firm, a financial analyst would be entirely responsible for improving a firm’s performance. For example, the rate of return is a useful financial tool, and a financial professional can use the tool for assessing the assets and gain.
- Usage of the concepts by a manager
A manager could make quality decisions for a firm by using the capital budgeting technique. For instance, during an ongoing project, decisions related to investment in equipment can be made effectively by the manager. It is different from long-term investment-related decisions as it will not affect the performance of an organization. Hence, a manager is mainly involved in the process of analysis deeply as a company’s funds are involved. As per the concept of money and its time value, scholars highlights that the value of a dollar today is far more than the value of a dollar tomorrow. Hence, a manager needs to analyze the outcomes before making investments.
The financial analysis process also involves evaluation of the business, and a manager makes a financial statement based on the future impact of a decision. For instance, the cost-volume-profit (CVP) analysis offers the manager a deeper understanding of the association between variable costs, fixed costs, and manufactured volume of a product. The manager can thereafter prepare a financial statement as it will provide data required for CVP analysis (Subramanyam, 2009).
References
Filbeck, G., & Lee, S. (2000). Financial management techniques in family businesses. Family Business Review, 13(3), 201-216.
Haka, S. F., Gordon, L. A., & Pinches, G. E. (1985). Sophisticated capital budgeting selection techniques and firm performance. In Readings in Accounting for Management Control (pp. 521-545). Springer, Boston, MA.
Klammer, T. (1973). The association of capital budgeting techniques with firm performance. The Accounting Review, 48(2), 353-364.
Subramanyam, K. R. (2009). Financial statement analysis. Includes index.