Question

Think of a chain of upscale spas: List 5 operational and financial questions that basic financial statements cannot answer.(I'm pretty sure I am over thinking this)

Answer 1

This is the kind of business where sophistication is inevitable. So many instruments and good infrastructure are required here. A good service to customers brings more customers in future. Financial statements are income statement, balance sheet, statement of retained earnings, and cash flow statements; but these have some limitations and can’t tell all the answers as required in operation and finance. These are as below:

Point 1) What is market value of an instrument? The historical cost of instrument is recorded in the balance sheet. The prevailing market value, known as fair value, is not mentioned anywhere in those statements.

Point 2) What would be the market of spa in near future? The market indicates business of spa which needs forecasting; such forecasted figure can’t be found through financial statements.

Point 3) How many instruments are there in the business? This can’t be answered, since only monetary values of those numbers are reflected in financial statements.

Point 4) What are the operational bottlenecks? The financial statements can’t give such answers, because these are qualitative factors but not quantitative factors.

Point 5) What are the views of stakeholders? There may be market study and survey of stakeholders’ thoughts and interests; these can’t reflect in statements.