Management Discussion and Analysis (MD & A) is a section of an enterprise's annual reports that provide an overview of a company's performance in during a specific period, her current financial conditions, and future projects. Annual reports help potential financial investors to understand a company's financial essentials and management performance. The reports are usually prepared by a specialized auditor in either a private or a public company. Information that an auditor provides to a company often shows the following; balance sheet, income statements, and its statement of cash flows. However, errors may arise. Therefore, the auditor ensures a proper verification of the financial details to minimize financial misconduct.
Generally, there are some reasons financial statements are important to readers. One of the importance is that it helps one to manage a business; financial statements provide critical data regarding an operation's performance. Additionally, it also indicates whether or not a company's revenue is increasing. Reviewing a financial statement at least monthly allows for a better understanding of how a business is doing and gives an opportunity to react and make changes to improve the performance.
Secondly, economic accounts assist in comparing the current and past performance of a business over a period, with an aim to determine improvements. The comparison also helps to identify areas of strength or weakness and determine why expenses may not have changed the initiated project. Also, financial statements assist readers to set goals for future performance, assist in staff evaluation, sell or purchase a business, obtain a loan for another financing, and also to compare own business with industry benchmarks.
In a business context, a risk factor is any measurable characteristic or elements which affects the value of an asset in a business such as; exchange rate, interest and market price. Risk factors in a business may be caused by changes in tastes, preferences of consumers, strikes, increased competition, and changes in government policy, obsolescence, technological effect, and economic status. Technology is one of the common risks that businesses face. These risk can range from a basic power outage through hardware or software failure, cyber-attacks and malware. These risks are time wasting. They may also lead to improper functioning of systems as well as equipment, loss or corruption of data, and data breach in some cases.
Elsewhere, competition risk may also affect business negatively. Such situations of adverse effects are possible actions of an opportunistic competitor to take advantage of the unfortunate venture. For instance, in pricing steeps, discounts by a competitor can be a threat to a business that has a higher cost than the competitor. Discounts may be driven by excess inventory due to supply or demand issues. Apart from pricing steeps, innovation by a competitor can threaten a firm's entire business model. Lastly, a competitor who opens next to another business site or who sites a better location can cause customer traffic, therefore leading to declining in once business ratings.
Economic risks greatly and directly affect a business since all business require adequate finance to grow. There are some different ways that a business can counter financial risks. Even though some can be internal, and others may be driven by external factors such as; fluctuations in the financial market or exchange rates, these risks lead to loss of income and negative cash flow when not managed. Ideally, when a company loses its biggest client, the inflow cash will automatically decrease. Nevertheless, to overcome an economic risk, a company should ensure that there is adequate funding, revenues, and planning of profits.
Currently, political risks have a great negative effect on business in several ways. The factors include macroeconomic issues such as high-interest rates and social issues such as civil conflict. Secondly, government actions, like confiscating a company's assets, making it difficult to acquire financing, which can affect the ability of a company's supply chain to support production. Other political events such as frequent rallies may also affect the operation of some small business that requires frequent customers and finance to sustain.
Finally, upon consideration of Volkswagen Company's 2017 report, there is a general improvement as profit sector is a concern. This is due to the implementation of the company's strategies that were implemented right as a stakeholder and the members agreed. Like any other financial institution, the company experiences challenges and the risks outlined, but management place appropriate measures to overcome the financial challenges. Besides profit-making, more job opportunities are created according to the report the company provided.
Equally, other companies should be on the alert to fight risks that negatively affects their outputs. The government should also involve in promoting business in an economy; reducing the taxes on the firms, funding projects, and setting good markets for the available businesses. Continuous assessment and education of the staff are important as it enhances capacity building among member in their line of profession. Joint training of the staff also promotes teamwork in a commercial institution.
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