ADVANCE FINANCE

Advance Finance for Decision Makers

Advance Finance for Decision Makers

Introduction

Advance finance holds an immense importance in today's highly competitive and rapidly advancing business world. Since businesses need to make sound and competitive decisions that are based on quality financials of the company. Financial analysis helps the firms in evaluating the projects or activities for making sound decisions, and the standards it provides lead the business towards quality financial reporting and effective decision making. Thus, this report highlights why advanced finance for decision-makers is a vital, particularly for project managers, at a senior management level.

Discussion

Relationship between Financial Analysis and Business Risk Assessment in Decision Making

Every business involves different types of risks that impacts on decision making and therefore essential to take into consideration, whether they are financial risks or non-financial risks. Risk is basically the estimation of loss that can result from wrong decision making with respect to operating activities of the firm. Therefore, in order to avoid risks, companies need to use various techniques and strategies to identify different risks associated with the business and how they can be prevented (Codjia, 2012, n.d). Financial analysis is one of the most significant tools used by decision makers for assessing the right amount of risks and returns associated with activities (such as capital projects, new product development, or expansion).

Financial analysis is one of the most crucial but significant part of financial decision making of the firm. This type of analysis includes the analysis of any risk and issue that the company can face and thereby helps in deciding which course of action must be taken to avoid it. So, in order to avoid risks while making sound decisions, the decision makers use financial analysis to recognize the potential financial risks and issues while analyzing the impact of alternative courses of actions (AMA, n.d., p.2). Hence, effective decisions makers are those who use the analytical tools for financial analysis in order to avoid potential risks and change them into rewards. Therefore, the mangers who are involved in decision making must adopt the tools and techniques used to arrive at the recommendations the analyst makes for avoiding risks and reaping rewards.

Recent Global Financial Crisis has put light on the weaknesses of financial records, data and information. As these weaknesses have resulted in the operational risks in financial institutions, foreclosure proceedings subsequent the Crisis, inconsistent bankruptcy, and insufficiencies in financial managers' access to data required for efficient financial analysis as well as effective management of risk. For example, a company has to decide about a capital investment project which can provide the company an access to international market. Financial analysis technique like analyzing the Net Present Value (NPV) of the project is used by the firms in order to know the present value of this investment. Thus, in this way the company assesses the risks (negative cash inflows i.e. more cash out flow than inflows) as well as returns using financial analysis, which helps a lot in making right decision (Lemieux, 2013, ...