STRATEGIC FINANCIAL MANAGEMENT ASSIGNMENT

Strategic Financial Management Assignment

Strategic Financial Management Assignment

Stage One

Requirement 1 A

Accounting measures cannot provide information on the value drivers of the business nor specific guidance to managers on what to do to achieve business goals. Moreover, generally accepted accounting principles (GAAP) used in the production of accounting measures often create distortions in the measurement of economic income and capital base of the business (Akhigbe, 2008, 575).

Accounting measures are lag indicators that capture historical performance but do not predict future firm performance well. Traditional PMSs that use accounting measures have been criticized to be inadequate for today's business environment ((AICPA, 2001, 5). Financial statements are the primary information that firms publish about themselves and investors are the primary users of financial statements (Baker, 2009, 191). However, when combined with non-financial information, financial information can contribute to the prediction of the future value of the firm. Flowingly, the purpose of this study is to analyze the contribution of such non-financial information over traditional financial information, when forecasting value creation in a sample of manufactories companies firms.

A survey of performance assessment practices of 1990 firms from multiple industries like financial (17.60% of responses), industrial (16.90% of answers), and cyclical consumer (13.80% of answers). Their revenues extend from $20 million to more than $10 billion. It indicated that these firms are using both financial and non-financial measures although financial measures are still granted more focus. Non-financial measures are recommended because they are believed to be leading indicators of financial performance. Managers act and make decisions that affect non-financial measures such as innovation, quality, productivity, and customer satisfaction, which ultimately lead to future financial performance. Existing financial measures do not show the long-term advantage actions. Important research backs the assertion that non-financial measures are linked to future accounting functions in an affirmative way (Carretta, 2011, 113).

Adding non-financial measures is also consistent with theoretical work on performance evaluation using agency theory. Under the in formativeness principle, non-financial measures improve the optimal incentive contract if they provide additional information about desirable managerial actions, which are not captured adequately by financial measures (Kwag, 2010, 56). This study tries to contribute to the extant literature on the application of non-financial measures in manufactories firms in Iran. It is not very vivid if putting non-financial measures to traditional accounting measures makes better firm performance and on the different possible events which can affect the effectiveness of non-financial measures. (Davis, 2005, 151)

Several reasons have been suggested to explain why non-financial measures are used to augment financial measures. Non-financial measures are believed to be superior to short-term profit figures as indicators of progress towards a firm's long-term goals. The incremental use of non-financial measures is related to the reality that they are concerned with causes and they are not related not effects. Profit and other financial measures indicate the effects of non-financial activities and achievements, while factors of customer satisfaction, job satisfaction internal processes, and the organization's innovation and improvement activities are thought to be the ...