Free research paper sample on Balance Sheet:
Obviously an accountant requires valuable information to construct the report. ¬†The valuable information which can be represented on a Balance Sheet, such as profitability levels, will affect strategic decision-making. So of course, financial reports can help formulate decisions also. Setting out the financial position of a business is the purpose of the Balance sheet. So, from this, strategic decisions regarding future performance can be formulated. A financial report will always centre on accounting. This can be defined as the process of identifying, measuring and communicating economic information to permit informed judgments and decisions, by users of the information.
If we just put aside the fact that there are these contingent factors that cannot necessarily be represented on a financial report, we can still see that information is vital. Mangers determine whether the decision-making is ideally short or long-term. In the short-term, a manager is looking for a profit and a healthy balance sheet. The strategic vision of stability and growth would come in the longer-term. All companies have these objectives, which prove that management DOES think long-term when formulating plans for future economic developments. However, there is often a separation of departments within a company into the finance, marketing and production. These three departments all have differing corporate objectives, some of which are focused on in the short-term and others in the long-term. For example, the finance department will aim to just survive initially which could be seen as a short-term objective. They would then perhaps target a debt-free balance sheet, which is more long-term. The marketing department in the short-term may well focus on increasing market share, but in the long-term may wish to overtake a competitor. These examples prove that management needs to achieve the short-term before they can even consider the long-term goals. They then have a firm structure on which to base their strategic decisions upon. If a firm just relies upon assessing financial reports to make decisions, what would the management be leaving out?
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