The main aim of any big and reputable firm is to maximize shareholders wealth, but it is almost impossible to make this a reality if profitability alone can’t be achieved. Profit is the excess of monies a company records in its statement of income after all expenses operating and non-operating, have been serviced. It is an indication that the firm is not only able to comfortably cover costs but that some monies are left thereof (Singh, 2015). Breaking even in this regard can guarantee firm sustainability and its continuity as a going concern if it is wholly leveraged. This is only ideal, and the real case has a combination of funding that brings in shareholders. Since shareholders earn from residuals after all expenses and deductions have been covered, of particular interest to any rational shareholder would be the profitability ability and index of the firm in question. Through profitability, they are somehow sure that dividends can be paid.
The dynamic business environment requires careful planning so that relevant responses are made to navigate through the shocks as they come. Or better still to readjust and realign in reaching new frontiers of business. Making the requisite investments in preparation for the expansion strategy is Key. REX is seen to be the only company to benefit from LCD cockpit avionics display beside the total annual graduation of 141 cadets from AAPA into FOs with some becoming Captains since the inception of Rex pilot program.
The flow of cash in and out of a firm would provide a good base for making investment steps. The firm should be able to maintain a positive cash flow in all its three activities (Rolstadas, 2013). It should be able to cover liabilities from operations and have a positive cash flow, while cash outflows in investments and financing activities to a larger extent, could be a show of expansion.
Revenue as a tool for analyzing financial performance
Revenue in many cases is used to refer to the total income earned by a company in its course of business operations. Revenue can be used by investors in determining the suitability of a company and viability of venturing into it. While it can give an insight, on keen and careful analysis, into the financial health of a company, it may be misleading and thus make investors place their monies in dangerous baskets. This is because the methods the company may have used to arrive at the reported revenue figure could be dubious and so may not reflect true performance. For example, a company may employ channel stuffing in inflating its revenues.
In this case, the company may supply extra units of products far much less than market demand and distributor requirement in a given financial quarter with the sole aim of blinding investors with a high revenue figure (Vona, 2017). Additionally to note is that revenue may be generated from sales that may have been made on credit. The company may have a bad collection policy besides selling on the accrual basis, and so revenue is just recognized from the point the sale is made and not necessarily when cash is collected. Some debts may be totally bad debts that could be written off thus putting into jeopardy the solvency and liquidity of the firm in question and so shareholders funds.
Rolstadas, A. ed., 2013. Benchmarking theory and practice. Springer.
Singh, J., 2015. Establishing Key Performance Indicators: Case company X.Vona, L.W., 2017.
Fraud Data Analytics for Revenue and Accounts Receivable Misstatement.
Fraud Data Analytics Methodology: The fraud scenario approach to uncovering fraud in core business systems, pp.311-332.