What are the tools financial managers use to evaluate their company's financial conditions and develop future plans?
Computing ratios based on key accounts listed on their firm's financial statements, four types of ratios: liquidity ratios (will firm have enough cash to pay for its short-term liabilities), asset management ratios (how effectively firm is using various assets to generate revenues), leverage ratios (extent to which firm relies on debt in its capital structure), and profitability ratios (overall success at using resources to create a profit).
Budgeted income statement (develops forecast of net income for planning period), budgeted balance sheet (forecasts the types and amounts of assets the firm will need to implement its plans), and cash budget (identifies the timing of cash inflows and outflows to help firm identify surpluses/shortages of cash) are also key tools managers use to develop and present their financial plans.