Scitronics Essay

561 WordsAug 14, 20143 Pages
Read:“SciTronics: Assessing a Company’s Future Financial Health” Discuss the following: 
 1) The incomplete and lagging nature of financial measures The impact of incomplete and lagging nature of financial measures can skew the decision making of not only the company but also external users, such as lenders. For example, as stated on page 46 of HBR Guide to Finance Basics for Managers, Asset Turnover ratio can be manipulated by either generating more revenue with the same amount of assets or by lowering the average receivables. Thus, if a company mistakenly reports lower average receivables than it should have, the Asset Turnover ratio can give a false indication of how efficient the company uses its assets to generate revenue. This mistake can be done simply by human error if an account receivables was accidentally omitted from its reporting – an example of incomplete nature. Additionally, investors or shareholders also face issues when making a decision of whether or not to invest in a particular company. Based on the reporting periods for each company, an investor may be in a time crunch to make a decision now rather than wait on a company to report its financial statements. As for lenders, the lagging nature can also be deceiving when assessing the financial health of a company who is looking to borrow money. Looking at historical data is just one piece of the puzzle but if a lender does not realize that the same company who looked great on paper a few periods ago has racked up more debt this time, but have not reported it yet, then the lender is taking a huge risk. 2) The influence of financial measures on behavior 
 Financial accounting focuses on the past, while managerial accounting focuses on decisions to be made now and in the future. A company’s decisions and behaviors are affected based on past performance, business and industry

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