What decisions might a manager make based on financial statements?

Financial Statements are considered to be an important piece or source of information not only to the external users of the information such as investors, creditors, government and the regulatory agencies and analysts, but also to the internal users, which predominantly includes managers.

Managers, especially financial managers may use this information for the following reasons:

• To help in making decisions, in general
• To help in deciding where to spend money and what amount of money
• Budgeting
• Deciding on where to invest money, i.e. cash management
• Deciding on which type of financing to go for, equity financing or debt financing
• Interpreting agreements or contracts that include provisions based on such information, i.e. when agreements are being structures between firm and other entities, based on financial statement variables management may include contractual terms
• To make day to day operating decisions
• To allocate new jobs, i.e. create new job vacancies or lay-off people, depending on whether the company wants to grow or not

References

• Charles T. Horngren, Gary L. S.William O. S., (2002). Introduction to Management Accounting. New York. Prentice Hall