Financial Management

1. Horizontal Analysis

When two statements are compared, and increase or decrease is represented by a single item in financial statement is referred to horizontal analysis (Warren et al., 2010). The significance of increase or decrease is evaluated against performance of the firm. Cash flow statement also helps to identify stronger and weaker activity in generating revenues. Efficiency of operating activity is also analyzed through cash flow statement (Debarshi, 2011).

By analyzing cash flow statement of Meals for the Homeless, it is observed that overall revenue through telephone solicitations are reduced by approximately 11 percent. It is also observed that overall revenues are increased by approximately 16 percent by revenue generation by telephone solicitation is lower than the previous year. The question rises in this scenario indicates the efficiency in generating revenues from telephone solicitations. In overall growth scenario, it is indicated as that the firm is not efficient in generating revenues from telephone solicitations. Strategies are not developed effectively, or focus on a specific area in not considered. Meals for the Homeless might not focused on telephone solicitations, but by analyzing previous year's revenues, telephone solicitations contributed approximately 16 percent, 12 percent in the current year. It is doubtful for the organization to consider that, in growing pattern decrease in telephone solicitation is bringing many considerations and questions. It shows the inefficiency of telephone solicitation section in generating revenues. In addition, it also shows that management is not focusing on this area. It can also be considered that use of telephone may also be reduced.

Horizontal trend analysis gives performance of specific activity in cash flow statement. It helps to identify the ineffective areas of the business.

2. Problems with the objective evidence and cost conventions

Tangible assets or plant, property and equipment are major assets. Therefore, part of capital employed in business. These fixed assets are important for understanding their worth in the balance sheet (Ralph, 2004). Another problem related is whether tangible fixed assets are real or not. These results in treating fixed assets as operating cost, if not considered, it results in low cost with high profitability. The main issue is how to value tangible fixed assets, at what value, whether to record used cost or lost value, and the asset is fairly mentioned in profit and loss account (Ralph, 2004)? There is also issue of asset value after impairment. If there is specialized equipment, which produces specific product and if the demand of that product suddenly decreases by substitute of obsolete technology, leading to asset impairment. Then what would be the value of such assets (Ralph, 2004). There are some questions that arise, which includes:

What would be the basis of valuation, on which fixed tangible assets are valued.

Cost of tangible fixed assets is fairly valued or not?

Methods used for depreciation and useful value of the assets.

Review for impaired assets.

Accounting for repaired costs and finance costs of fixed assets.

Objectives of the standard are for accounting treatment for tangible fixed assets. The major issues regarding tangible fixed assets are timing for ...