Question

how are the following concepts ,Costing concepts, Budgets - Operations and Flexible, Financial Statement Tools - Financial Ratios and Trend Analyses important for a manager who works for the state

Answer 1

Importance of Flexible Budget

• As the market keeps fluctuating and changing flexible budget helps the manager in considering multiple situations and prepare the company to tackle any change in market that comes up. If an unfortunate change occurs, management will be prepared to face such challenge.
• In case of change in the level of activity the fixed budget will be of no use as it would have been prepared using a different level of activity . Actual results cannot be compared with fixed budget as both have separate level of activity.Comparison of them will be inappropriate.Hence in this case flexible budget can act as a saviour.
• Most importantly , a flexible budget helps in assessing the level of output that should be produced to achieve the desired level of profits.

Importance of Financial Ratios and trend analysis

• Financial ratios helps in assessing whether the company is making profits. Whether it is able to generate earnings for its investors.
• Certain financial ratios helps in assessing the liquidity of the company. In simple words whether the company will be able to fulfill its short term liabilities can be assessed with the help of financial ratios
• Certain financial ratios helps in assessing whether the company is performing better or poor as compared to the industry it is part of .