8605-421 Interpreting Financial Statements to Assess Organisational Performance Using Financial Ratios

Unit Overview

8605-421 Interpreting Financial Statements to Assess Organisational Performance Using Financial Ratios is a unit that helps the managers within the organisations to improve their understanding of the role that financial statements plays in determining the financial performance of the organisation by evaluating the achievement of organisational goals. The unit is offered within ILM Level 4 module, which targets middle-level managers. Financial knowledge is critical for any manager in ensuring that they can put up effective measures to ensure that the financial resource assigned to their areas of responsibility is effectively managed.

In the organisations, there is a need to work with provided constraints and financial targets. Financial ratios help the managers to ensure that they are able to operate within these limitations and provisions, which are aimed at ensuring that the organisation is both productive in terms of giving a return on capital and is sustainable in terms of the ability to fund its own performance.

These are critical functions that any manager needs to play in evaluating and reviewing the performance of their specific areas of responsibility and ensuring that this area has a positive impact on the overall organisational practices and processes. The main purpose oft is unit is to ensure that the learners are able to understand and interpret financial statements with a focus on assessing the organisational performance through using financial ratios, which point to critical factors that are relevant and meaningful to stakeholders. The unit is taught in 6 hours of guided learning and is responsible for 3 credit values within the ILM Level 4 Module.

Suitability of the Unit

8605-421 Interpreting Financial Statements to Assess Organisational Performance Using Financial Ratios us a unit that is significantly important to organisational leaders. All managers, especially in middle and top management, have the responsibility of ensuring that the organisation is productive in terms of meeting its financial goals and objectives. This unit helps them to develop and understanding and mastery of the different ratios that can be extracted for the organisation's business, and financial statements indicate the performance of the organisation in terms of financial performance, which reflects the accomplishment of organisational goals and objectives. The unit is designed to meet the learning needs of the middle-level managers.

The unit is suited to this group of leaders since they are tasked with the responsibility of overseeing activities within a department, line or region and hence have the duty of conducting an assessment of the progress of the organisation in this area of operation. However, this unit is not only for middle managers but can be used by the top managers to ensure they boost their understanding of evaluating and monitoring financial performance of the organisation.

Another group of stakeholders suited to this unit are the external financial consultants and auditors who review the performance of the organisations or offer support in decisions making. The unit helps them to further build their understanding of financial rations and statements in determining organisational performance.

Learning Outcomes

Upon completion of the unit, the learners should be able to:

• Use figures extracted form financial statements within the organisation to the purpose of each statement that the organisation produces and keeps in indicating the position and performance of the organisation

• Show understanding of different organisation stakeholders and user accounts, as well as provide an explanation of their expectations in relation to the performance of the organisation financially

• Calculate financial ratios that reflect the performance areas using information extracted and interpreted from the financial statements of the organisation

• Interpret the financial ratios and provide an assessment of the organisation’s performance in a way that stakeholders can easily understand

• Show understanding of limitations associated with the financial ratios as a tool for accurately assessing organisational performance.

Key Learning Areas

8605-421 Interpreting Financial Statements to Assess Organisational Performance Using Financial Ratios is a unit that aims at improving the accounting abilities of the learners. As such, the unit mainly focuses on providing an understanding of the different accounting concepts and financial statements that are used within the workplace. Some of the main areas covered within the unit include:

Financial Statements

This area of learning provides the basic principles of accounting and keeping of financial statements within the organisation. The learners are guided in understanding the range of stakeholders within the organisation and the financial expectations, including approaches to distributing or investing profit. In this area of learning, the learners are also introduced to accounting in terms of keeping records.

They are introduced to documents such as balance sheets. Profit and loss accounts, income and expenditure statements, statements of activities, statements of cash flow and statements of changes of equity. These are statements that build the ability of the leaner to understand the financial position of the organisation within a specific time and ensure that they can effectively develop nan understanding of the position of the organisation in terms of financial performance hence making effective strategies and interventions based on the information.

Financial Ratios 

Leaners must be able to use the information and data received form the financial statements to make more conclusive financial arguments. The financial ratios preset analysed and interpreted findings form the financial statements, which indicate the actual financial performance of the company. In this area of leaning, the learners are introduced to the hierarchy of ratios based on the more important ratios within the organisations.

They are taken through the financial ratio analysis to determine profitability, financial efficiency, liquidity and shareholder return ratios. This process involves training on approaches to calculating and interpreting the financial ratios to make valid arguments. They are also made aware of factors that could result in limitations on the process of ratio analysis and the use of findings within the organisational context.

Evaluation

Upon completion of the unit, the learners are put through an assessment to evaluate the performance of the learning process. The first phase of the assessment is formative, and its conducted in different aspects, including supervised practice. The summative assessment is done using a written assessment where learners are required to respond to questions on the unit.