Unit 11: Using Managerial Accounting: Trends and Ratios
In this unit we examine the three-pronged approach managerial accountants and potential investors typically use to analyze a company’s financial information. First, we use trend analysis and common-size analysis to examine trends the company has experienced within its own financial sphere, such as sales and earnings from one year to the next. Secondly, we compare the company's financial measures with its main competitors in the industry. Finally, we compare the company's financial ratios with industry-wide averages or standards.
Completing this unit should take you approximately 7 hours.
You end this unit and the course on a practical and important topic. You have learned to use managerial accounting to produce great deals of information germane to management decisions. Trends and ratio are critical, but so too is non financial analysis critical for successful managerial decisions.
Margaret Heffernan in MoneyWatch reports that 50 to 80 percent of mergers fail! Before a merger is entered into there is copious and scrupulous managerial accounting information produced and reviewed, yet the merger failure rate has been far too high for decades. The lesson here is that, although the numbers you can now produce and analyze are important, they cannot, on their own answer complex management questions. Management accounting information serves a critical role, but decision-makers always need to look beyond the numbers and use a balanced approach.