Question

comprehensively discuss the main financial management tools and techniques

Answer 1

Answer

These are some Financial management Tools & Techniques
a. Common Size Statements
b. Trend Ratios
c. Funds Flow Analysis
d. Cash-Flow Analysis

A. Common Size Statements:

In common-size financial statements, figures are converted into % to some common base ( mostly revenue). Common size BS and P&L are prepared vertically and interpretation is done for changes taken place over a period of time.

B. Trend Ratios:

Trend ratios are the index no. of the movements in financial figures in the reported financials of the company for more than one accounting period.

It is a statistical technique to find the trend of financial items which are used in the analysis of financial items.
These ratios are for the coming accounting periods taking the base period as 100. The trend ratios help us to arrive at the conclusions for important changes.

C. Funds Flow Analysis:

This analysis provides details of changes in financial position over two balance sheet dates. The fund flow statement shows financial resources which have become available during the accounting period and other resources which have been used up.

It refers to the movement of funds which cause a change in working capital. The net increase or decrease in working capital is further analyzed to get many important indications.

Funds flow statement is helpful in testing the effective use of working capital.

D. Cash-Flow Analysis:

It is mandatory to prepare cash flow in financials now. A statement of cash flow reports the cash incoming and outgoing and net changes in cash resulting from operating, investing and financing activities of an enterprise. It reports a net cash inflow or outflow for each activity and for the overall business.