Essay on Financial Condition Analysis
What is the (EVA) economic value added model? How is it used, why is it important?
The economic value added model is used to measure the company’s real economic profit. The model is based on the measurement of the residual wealth calculated by deducting cost of capital from its operating profit (Gapenski & Pink, 2012). The economic value added model is used to determine the real, true profit of companies and helps to determine whether the declared profits of the company match real ones because, in actuality, companies may use different schemes to hide their real profits and present investors their high profits which do not always coincide with their real profits. The use of the economic value added model is important because it helps to determine what the actual position of the company is and what its profitability is.
What are (KPIs) key performance indicators? How are they used and why are they important to monitor the financial position of a healthcare organization?
Key performance indicators vary depending on the company and industry, where the company operates. As a rule, key performance indicators are measures that help to determine whether the company matches its strategic and operational goals or not. Therefore, key performance indicators are the major indicators that show the marketing performance of the company and help to determine the extent, to which they match strategic and operating goals of the company (Gapenski & Pink, 2012). For example, the market share or total revenues of the company are important indicators for the company that focuses on the market expansion. These performance indicators should give the clear vision of the current position of the company, which may be compared to the desired one, i.e. the position of the company, according to its strategic and operating objectives.
Why is financial forecasting important? What is taken into account in a forecasting analysis?
Financial forecasting helps the company to determine which financial resources it will need and will have at its disposal within the definite timeline (Gapenski & Pink, 2012). For example, the company needs to forecast its revenues to be able to fund new projects. The accurate financial forecast helps the company to determine whether it will be able to earn sufficient funds to complete the project successfully or not. In case of the inaccurate financial forecast the company may lack financial resources to fund the project. However, external and internal factors affect the financial forecasting and companies should take into consideration possible changes in the market, in customer behavior, and internal business operations to make financial forecasts.
What drives changes or deviations in the operating revenue forecast?
The change in the customer behavior, supply or competition can drive changes and deviations in the operating revenue forecast (Pine & Gilmore, 2009). For example, the introduction of an innovative product or service by a rival will change the operating revenue forecast of a company. Similarly a scandal that discourages customers from buying products or services from a company will lead to changes in its operating revenue forecast.
When forecasting revenue, what’s the difference in forecasting from the top verses the bottom?
Forecasting from the top differs from forecasting from the bottom. Forecasting from the top implies the ultimate financial results after taxes (Pine & Gilmore, 2009). Forecasting from the bottom implies forecasting based on the brute financial performance of the company.
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