Financial Management of Processes-Introduction
It is essential for management to have the tools of assessing the achievement of the business in which they work. Managers should have knowledge of cost accounting alongside the traditional way of accounting. The management should not just pay attention to the current operation and the profits, but also focus on the long-term well being of the business (Hilton, Maher, Selto, 2008, p. 73). For example, as the management strives to provide quality goods and services, it is necessary to protect the business assets. Quality goods and services provide the business with short-term income and earn a good reputation for the business. Good reputation enables the business to maintain and attract customers in future. On the other hand, safety of the assets is crucial since they last long when in good condition and are useful for a long time.
The first sentence of the statement under evaluation is flawed to some extent. Despite the emphasis and having different ways to define and measure the operating income for financial management purposes, operating income analysis can indicate both short-term and long-term outcome of a business. This is a benefit to a business since managers are able to understand the current situation of the business as well predict what may result in the future. The financial managers in the process of making short-term and long-term decisions use operating income and variations such as net operating income (NOI) to enhance the survival of the business.
When the media brings to light the business’ earning per share, the report can have an impact on short-term prices since it is easy for an external party to know whether a business is in line with its EPS target. The quarterly report may fail to change. Hence, it is important for an external party to compare the operating income and NOI of the business with the previous year’s figure to find whether the trend is positive or negative. Comparing the two results in relation to the income statement may be meaningful and relevant for future prospective (Investopedia, 2008, p. 2).
Secondly, in part two of the statement, there are some advantages on the manager’s focus on operating income. It is easy for the management to monitor and reward the employee overall activity within a short time. Through this, the management is able to maintain the quality of services offered. Traditionally, employee reward came at the end of the year thereby making them to focus narrowly on the rewarded goals. Employees may have ignored other factors such as quality, leading the business to operate without long-term vision (Sharma, 2006, p. 3).
Lastly, managers need to put into consideration other accounting methods beyond operating income in order to achieve long-term success. Examples of other accounting methods are cost accounting, six sigma, operational analysis, lean analysis and operational analysis. Managers should further look at issues such as customer perception, marketing, value added philosophies and the business environment, which are outside accounting. They also should develop and analyze the measurement needs for a business at all levels. According to (Kaydos, 2003, pg . 6-7), company final score can best be estimated by probing the measures used.
Managers should set long-term goals besides having short-term goals and put in place measurement processes which are long-term. They should have tools, which will help the business thrive in the changing business environment. Good management processes and well-prepared accounting records enhance the business long-term success.
Hilton, Ronald, W., Maher, Michael, W., Selto, & Frank, H. (2008). Cost management: Strategies for business decisions. 4th ed. New York: McGraw-Hill/Irwin. http://www.investopedia.com/articles/fundamental/101602.asp.
Investopedia. (2010 October 18). Zooming in on net operating income. Retrieved from: http://www.investopedia.com/articles/fundamental/101602.asp
Kaydos, Will. (2003). What should your company measure besides financial results? (Balanced Scorecard Institute, Retrieved from: http://www.balancedscorecard.org/WhatShouldYourCompanyMeasure/tabid/138/Default.aspx.
Sharma, Shyamlal, R. (2006). Economic value added (EVA). Retrieved from: http://www.indianmba.com/Occasional_Papers/OP94/op94.html