Financial Analysis Management Critically Evaluate Role Organizational Performance Assessment

Finanace

The Importance of Organizational Performance Assessments

Financial management is a key issue for all organizations. For commercial organizations the primary purpose of the firm is usually to create profit for the shareholders; most businesses were set up with the aim of making money rather than altruistic purposes. Therefore, financial assessments of the firm are a primary measure of its performance, and can give great insights into the efficiency and effectiveness of the firm, especially when compared to other organizations in the same sector. Even non-profit making organizations, such as charities and government departments, require some type of financial assessments take place in order to determine whether or not they are reaching the goals, and assess the way resources are utilized. The aim of this paper is to consider how and why organizational performance assessments are important, and consider how they may be utilized, focusing on financial assessments, but also considering the role of other types of assessment.

The financial assessment is one of the most basic measures of a firm. One of the most important assessments is the annual report, in the U.S. this is referred to as the 10k, which reports on the performance of the organization for the preceding 12 months. The primary defined user group for the annual report of the shareholders (Elliott and Elliott, 2011), however this does not mean they are the only stakeholders group to use this report. The annual account is a formal report on the organization's performance and position, with three main accounting reports, the profit and loss of income statement, the balance sheet and the cash flow statement. This helps an external stakeholder to review the performance of the organization, looking at what revenues have been generated, the costs of producing those revenues, the level of assets and liabilities and the way in which cash is being used and generated. The annual reports is a primary document for external stakeholders as it is the most comprehensive financial review the organization it is published (Revsine et al., 2011). The traditional assessment within reports are useful as they help to provide information that will allow the organization's performance to be assessed against itself in previous years, as well against other firms (Revsine et al., 2011). Many stakeholders may examine the annual reports utilizing ratio analysis to help identify any trends or patterns. Statements made in the report may also help increase understanding of the firm, for example any ongoing legal actions that are faced, sources of business and other influencing factors. The importance of the annual reports is reflected in the requirements for reports produced by public limited companies to be assessed by auditors to ensure that they are materially correct (Revsine et al., 2011). By their nature, annual reports are usually utilized by external stakeholders.

A problem with the annual accounts is associated with the way in which they are produced, on an annual basis, and always historical in nature. Other statements also made help minimize the asymmetry of information, such as the quarterly statements. However, individuals to assessing the firm, whether it's for investment or other purposes, or be interested in the future as well as its past. Therefore, when stakeholders look at firms there will also be looking to information which may indicate the way in which the firm made perform in the future. The financial assessments are one of the most important assessments, but they are not the only assessments which can be used to determine the level of the organization's performance.