Summary
The referred Article speaks of the importance of working capital, internal audit and proper financial statement and how these interact to provide a proper business growth environment. In my analysis below I give my thoughts on these aspects.
Analysis
1. Proper management of working capital and review of the capacity of vendors to cope with production requirements has always been of prime importance.
2. The present credit crisis and economic environment has brought about a situation where production can be adversely effected for organizations by virtue of the failure of suppliers to get adequate access to working capital. It may therefore be necessary for organizations to actually fund or arrange temporary access to funds for suppliers.
3. Similarly organizations may also need to organize access to funds for customers - examples being purchases of large capital equipment or consumer durables.
4. The present credit crisis presents new challanges in this area because the suppliers of credit would expect the company to effectively ensure that the funds being supplied are adequately protected in some manner - even if not guaranteed.
5. Internal audit and control processes would play a significant role in this situation. The importance of internal audit has only increased in this situation. The manner in which accounting in financial statement presentation was followed in the breach of accepted standards and principles puts added onus on internal audit.
6. Control processes have to be continuously developed in this situation.
7. Accounting standards are being continuosly revised. The recent codification of FASB standards presents new challanges. Also the imminent shift to IFRS gives added problems as well as opportunities.
8. These are some of the aspects which analysts should keep in mind when reviewing the performance of companies and how the analyzed company is performing with respect to these points.
