Relationship Between a Case Analysis and Financial Analysis

Relationship Between a Case Analysis and Financial Analysis

A case analysis is a detailed evaluation and assessment of a particular group, field or person. It
involves an intense study, collection and measurement of variable relating to the subject matter.
For a business, a case analysis shows the previous trends of activities and events of a business
for the past years and how they influence its current position. The aim of a case analysis is to
determine how the identified variables influence the characteristics of the business under study.

Financial analysis on the other hand is the quantitative study and analysis of an organizations
financial performance. This is done through studying the financial statements which shows the
current condition as well as the prospect of the company. The general objective of financial
analysis is making decisions concerning the direction of the company. Specific aims may be to
make investment decisions, determine current market trends and determining cash generating
abilities.

Case analysis deals with general aspects of the company and thus touches on virtually every
area of the same. The information from case analysis is linked to results of financial analysis to
make more informed decisions. A case analysis will mostly involve the qualitative as well as
quantitative elements of a business. Financial analysis is used in case analysis to determine the
quantitative elements.

Value of financial statements to a case study

Generally a case analysis will apply financial statements to get information about the various
financial decisions of management and their impacts. The contributions of the main financial

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statements to a case analysis are as follows;

Balance sheet;

A balance sheet shows the position of a company at that particular time in terms of companys
assets, liabilities and shareholders equity.

When carrying out a case analysis, it is advisable to perform a SWOT analysis of the
company/business under study. This will help to identify the strengths weaknesses opportunities
and the threats a company is faced with. A balance sheet may show the strength in terms of
assets a company possesses, weakness in terms of debts, opportunities in terms of assets
available to for loans or threats in terms of excess money owed to creditors.

Profit and loss (Income) statement

This shows the income generated through the activities that a business is involved in. it shows
the revenues, cost of the revenue generating goods/services and the expenses incurred.

Through a case analysis, one is able to know the nature of external macro-environment and its
effects to a company performance. Such information can be drawn from profit and loss account
by checking such items as cost of goods sold and the expenses. This gives a picture of the cost
of items in the market and other external trends.

Calculation of financial statements;

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The following pro formas are used in preparation of main financial statements;

Trading Profit and loss account for the year ended XXX

$ $ $

Sales XXX

Less: Cost of Goods sold-opening stock XXX

Add purchases XXX XXX

Less: closing stock (XXX) (XXX)

Gross profit XXX

Less: expenses

Expense 1 XXX

Expense 2 XXX XXX

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Net profit XXX

Balance sheet as at XXX

$ $ $

Fixed assets cost accumulated Net book value

depreciation

Fixed asset xxx (xxx) xxx

Fixed asset 2 xxx (xxx) xxx

Current assets

Current asset 1 xxx

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Current asset 2 xxx xxx

Current liabilities

Current liability 1 xxx

Current liability 2 xxx (xxx) xxx

Net total assets xxx

Capital

Opening balance xxx

Add net profit xxx xxx

Less drawings (xxx) xxx

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Relationship Between a Case Analysis and Financial Analysis

Advantages of a strategic Audit

A strategic audit is done to measure the qualitative and quantitative aspects of a firms past
performance and henceforth base the information in strategic decision making.

Strategic auditing has the following advantages;

Quality Decisions

It leads to a strong conceptual understanding of the decisions which led to a company being
where it is. This will help the top management realize the success decisions as well as the
failure decisions of the past and thus reapply or reject those previous decisions.

Evaluate the Internal Controls

Strategic auditing will enable the business to assess and evaluate its various internal controls.
Part of the strategic audit process is evaluating the value-addition of various processes to the
company as a whole. The internal controls are put in place to check and balance these
processes. Thus, through strategic auditing, the effectiveness of the controls is measured.

Ensure a strong Portfolio

Strategic auditing focuses the managements attention to the business units as well as markets
which are worth investing into. A balanced portfolio is achieved when management capitalize on

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attractive markets and also wise application of investments from those markets to their various
business units.

Risk minimization

Businesses undertaking a strategic audit are better shielded against risks associated with
uninformed decisions. This is because the audit results include recommendations on what
direction to take regarding various processes or undertakings.

The following are some of the needs which are addressed by strategic audit on a business;

Informed decisions

Information has become a very paramount feature in decision making. The decision maker has
to know what is happening within the business and also the surrounding environment. He also
needs to assess the relationship of these variables before making decisions. Strategic audit
offers such information.

Shareholders demands

One of business shareholders needs is wealth maximization on their investments. They need to
be confident that their investments are applied to right sources and activities. Strategic auditing
offers information as well as checks on investments and thus minimizing losses that may be
incurred though arbitrary investing procedures.

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Independent establishment of the state of affairs

Any audit process should be tailored in such a way that all the information gathered and
presented is objective. To ensure true and fair views of a companys affairs are presented, audit
controls are put in place to counteract subjectivity. Strategic auditing therefore ensures
independence of the information gathered and thus it is enhances reliability of the results.

There is a need for a company to be carrying out a strategic audit on a continuous basis.
This is because;
1. Continuous strategic auditing ensures that every information used for making decision is
timely, sufficient and reliable. This ultimately leads to quality decision making.
2. There would be an improvement in reporting in terms of the timeliness. Continuous
auditing provides the management with real-time information and thus improves on the flexibility
in decisions and reporting effects of those decisions.
3. It will help the company to take advantage of opportunities as they arise and also take
precautionary measures against looming threats to the company.

Strategic audit effectiveness

The effectiveness of a strategic audit is pegged on its independence. An auditing team should
not have any member who is in any way related to the client (the person or organization) being
audited. This helps attaining the integrity of the information gathered and disbursed.

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A strategic audit provides the following;

Identifies the current strategy applied on the business and evaluates its effectiveness.

It provides information on the external environment and the threats and opportunities in
presents to the company.

It enable a company to identify and assess its capabilities e.g. in terms of competitiveness in the
market.

It provides the business with financial indicators and ultimately the financial direction to take.

REFERENCES

CBS Interactive.inc (2010). Financial Statement Analysis.28th Jan 2010.

Retrieved from http://jobfunctions.bnet.com

Cengage learning (n.d).Analysing Case Study.28th Jan 2010.retrieved from

http://college.cengage.com

Csanad, (2010). Importance of financial statements. 28th Jan 2010.retrieved from

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http://hubpages.com/hub/The-Importance-of-financial-statements

Gordon J. P (1997).Ten Strategic Audit Questions. 28th Jan 2010.retrieved from

http://findarticles.com/

Tutor2u (n.d).Strategy-the strategic audit.28th Jan 2010.retrieved from

http://tutor2u.net/business/strategy/Strategic_audit.htm

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