Project 1: Number Cruncher Vs. Strategic Thinker Due Week 4

Project 1 Number Cruncher Vs Strategic Thinkerdue Week 4 And Worth 2

Analyze how a specific change within a company impacts financial statements and key ratios, using financial reports to inform decision-making, and consider the effects on non-accounting processes such as staffing or inventory management.

Write a 2-3 page paper in which you:

• Identify a change you want to implement in the company and explain its impact.
• Select and explain how a financial report related to this change will influence your decision-making.
• Discuss how non-accounting information or processes (e.g., staff training, inventory reduction, capital purchase) will be affected by the change.
• Cite at least one scholarly source other than your textbook to support your rationale.

Paper For Above instruction

In the dynamic landscape of modern business, strategic decision-making rooted in comprehensive financial analysis is vital for sustainable growth. Among various strategic initiatives, expanding credit policies to increase sales volume has emerged as a common approach. This paper explores the implications of extending credit to more customers within a retail company, emphasizing the influence on financial statements, key ratios, and non-financial processes. The primary aim is to demonstrate how historical financial data can guide future decisions and to understand the broader organizational impacts of such a change.

Proposed Change and Its Impact

The decision to extend credit to additional customers aims to boost sales revenue, but it carries several financial and operational consequences. An increase in credit sales typically results in higher accounts receivable, which in turn affects cash flow and liquidity. The company’s accounts receivable turnover ratio may decrease initially, signaling a slowdown in collections, while the days sales outstanding metric could increase, indicating longer periods before cash is realized. This change might also lead to increased expenses related to bad debts if credit risks are not carefully managed. To evaluate these effects, the company can analyze its recent income statement, balance sheet, and cash flow statements to understand historical trends and project future changes.

Influence of Financial Reports on Decision-Making

The income statement provides crucial insight into how increased credit sales could elevate revenue figures, but it also highlights potential increases in expenses such as provision for bad debts and collection costs. The balance sheet shows the incremental growth in accounts receivable, which affects overall asset management and working capital. The statement of cash flows reveals how changes in receivables impact cash from operating activities, providing a comprehensive view of liquidity. By analyzing these reports, management can forecast the potential impact of the credit extension on profitability, liquidity, and financial stability, facilitating informed decision-making.

Impact on Non-Accounting Processes

Extending credit may also influence non-financial aspects of the organization. For instance, staff responsible for credit evaluation and collection might require additional training to manage the increased credit risk effectively. Customer service processes may need adjustments to handle longer payment periods or to communicate credit policies clearly. Additionally, inventory management might be affected if increased sales lead to higher demand, necessitating adjustments in stock levels or supply chain logistics. Furthermore, the organization may need to reassess its staffing levels or technology systems to support the expanded credit function, ensuring efficiency and risk mitigation.

Supporting Evidence from Scholarly Literature

According to research by Kim and Han (2015), extending credit can significantly increase sales volume but must be balanced with effective credit risk management to avoid negative impacts on cash flow and financial health. Their analysis demonstrates the importance of using financial ratios, such as accounts receivable turnover and bad debt expense ratios, to monitor and control the outcomes of credit policy changes. Organizations that integrate these financial indicators into decision-making processes can better forecast and mitigate potential adverse effects, ensuring sustainable growth and financial stability.

Conclusion

Strategic financial decisions, such as expanding credit to customers, require careful analysis of historical financial data and an understanding of broader organizational impacts. Utilizing financial statements and ratios enables managers to predict outcomes and set appropriate policies. Moreover, considering the effects on non-financial processes, including staff training and inventory management, ensures aligned organizational implementation. Incorporating scholarly insights into credit management emphasizes the importance of balancing growth initiatives with financial prudence, ultimately fostering long-term success.

References

• Kim, S., & Han, H. (2015). The Impact of Credit Extension on Business Performance: Financial Ratios and Risk Management. Journal of Business Finance & Accounting, 42(7-8), 953–977.
• Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management (15th ed.). Cengage Learning.
• Gibson, C. H. (2017). Financial Reporting & Analysis (14th ed.). Cengage Learning.
• Shim, J. K., & Siegel, J. G. (2012). Financial Management (4th ed.). Barron’s Educational Series.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance (12th ed.). McGraw-Hill Education.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis (11th ed.). McGraw-Hill Education.
• Higgins, R. C. (2018). Analysis for Financial Management (12th ed.). McGraw-Hill Education.
• Penman, S. H. (2013). Financial Statement Analysis and Security Valuation (5th ed.). McGraw-Hill Education.
• Koller, T., Goedhart, M., & Wessels, D. (2015). Valuation: Measuring and Managing the Value of Companies. Wiley.
• Lev, B., & Gu, F. (2016). Better Accounting, Better Decisions. Harvard Business Review, 94(3), 62–67.