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Introduction
Whether starting your own company or working in the corporate world for an established
company, a sound understanding of what it means to assess the financial performance of
the company is necessary. Accounting plays an important role in finance because it
provides crucial financial data through the implementation of financial statements and
managerial reports. Knowing how to interpret these reports and statements is critical in
order to appropriately allocate the companys financial resources in order to maximize the
best return in the long run.
A financial manager must perform very specific financial functions on a day to day basis.
"It is the responsibility of financial management to allocate funds to current and fixed
assets, to obtain the best mix of financing alternatives, and to develop an appropriate
dividend policy within the context of the firms objectives" (Block & Hurt, 2004, p. 11).
Some other daily responsibilities required of financial management include credit
management, inventory control, and the receipt and disbursement of funds. The most
important function is to balance the risk and profitability of the company which is
achieved through the analysis of financial statements and managerial reports.
Nature of financial statements and managerial reports
Accountants prepare certain basic financial statements for a business. In Chapter 2 of
Foundations of Financial Management, 11e (Block & Hirt, 2005), are three basic types of
financial statement
