Three Key Important Terms In Finance


Management Accounting

This is a database that contains all operations of the company. Management accounting is sometimes called operational accounting. Some call it accounting, but they are also not far from the truth: the principles are absolutely the same – recording all the facts of economic activity at the time of their commission or immediately after. The difference is in the users: the users of the management are the owners and top managers, and the users of the management are the tax authorities, investors and buyers of shares. Financial accounting is another management or accounting term that does not carry a separate meaning.

Management Reporting

This is reporting, the users of which are the owners and top managers of the company, in contrast to financial statements, which are needed by the Federal Tax Service, statistical authorities, angel investors and traders. Financial reporting is another term that means the same thing. The three main reports of the management system are the P&L (profit and loss statement), DDS (cash flow statement) and the Balance Sheet. The same reports are compiled in accounting; only the forms of reports were regulated in advance by the state.

The Financial Analysis

This is the study of financial indicators and their relationships with each other according to management (or accounting) reporting. In the process of financial analysis, the following can be used:

  • Calculation of financial indicators: profitability, liquidity, payback, OPEX, CAPEX, EBITDA, etc.
  • Carrying out plan-factual analysis.
  • Conducting factor analysis (or otherwise calculating the Dupont model – 2, 3 or 5 factor) and other techniques.

Financial analysis allows you to:

  • find the strengths and weaknesses of the company;
  • make optimal management decisions;
  • predict the future of the company;
  • control the efficiency of cash flow;
  • control the rational use of profits;
  • calculate performance indicators (KPI);
  • determine the feasibility of the costs incurred.

Anyone with a 10 grade understands before analysing anything, you must collect data. The more complete the collection, the more accurate the analysis and forecasting.

Now, let’s return to the review we quoted at the beginning of the article. The company author of the review contacted does not maintain management or accounting records. She suggests that the entrepreneur somehow organize his accounting and they will take the data and analyses it. However, data collection and record-keeping is the most time-consuming task. If you do it poorly, the analysis will be crap.

Also Read: How FinTech Businesses Are Helping Entrepreneurs in the Age of Coronavirus

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