The advantages of the Financial Decision -Making Tools
The progress of any business need to be established so that to determine whether his business is viable or not.For a business to keep existing it must cover up the operating cost and also make some profit.The profits that made are ploughed back to the business.This will help the business to expand its products or open up to new area.The determination of the success of the business is not by mere look of the structures but it needs a careful analysis of the statements of the business.This will help one to make an informed decision about whether his business is viable or not.The financial decision making tools will be of help to make you understand about the progress of the business. A n accurate picture of the performance of can be provided by the tools.The financial statements, ratios and other are the tools.
The balance sheet, the income statement and the cash flow statements are the example of the financial statements.The importance of the financial statement is that will help one to determine the use into which the resources were applied.It also important to note that the liabilities in the business will be used to determine the debt profile of the business.The debt profile will help the business to come up with ways to reduce the leverage level of the business.The profitability of the business can be determined by the help of the income statement.This is important since from the income statement we can be able to determine kind of the expense that take more of the income that are generated so that necessary steps can be taken.
Financial ratios are also an important tool for decision making.It is important to note that there are different functions for the different ratios, for example the liquidity ratios are used to determine if the business can meet is obligations when they fall due.the ratios help to measure if the business has a sound financial base.Releasing that the business has problems by the use of the ratios will make the business to take necessary stepsthe financial statement can be used to compare the performance of the business with similar business.through the comparison will be able to determine how to be competitive in the market.
Another tool for decision making is the forecasting.The future sale to be made can be determined by forecasting.The forecasting will help the business to acquire the necessary resource to meet the expected sales.
Investment analysis is also an important tool when wants to make a decision on where to invest.This tool will help one to identify those projects that are in market thus will in the long run reap profits for the organization.