B. Challenge Case 2.4 with the following thoughts reinforced. 1. Prepare a variance analysis on the balance sheet, Income statement, equity statement and cash flow statement. A high performing student will also prepare a three to five year trend analysis of aforementioned statements. Next flag or highlight two or three variances on each statement that increased or decreased significantly. You should have enough information useful in identifying corroborating (i.e. , the source of recognized variances considered unacceptable. Now you have a possible CONDITION leading to the CAUSE of unacceptable performance. This yields your Cause and condition that must be written up to include numerical increases and or decreases. Now you are ready to move onto what the numbers mean. It does not mean that you are right. Your judgment should help in selecting the contributor(s) to the ongoing condition.Do not automatically cite income statement items as the “effect”. Low hanging fruit may be tasty but are not necessarily the root of the problem. The effect requires a measurement of contribution to the condition. You must use relevant ratios and cash flow increases/decreases useful in measuring related changes. Never speak in terms of dollar variances. A common size analogy serves as an acceptable replacement for dollars. Connect the dots between CONDITION&CAUSE and the EFFECT(S). You now have Measurements useful in making an argument as in what is causing the CONDITION.3. Now that you have the condition, cause and effect let’s compare the actual effects to said industry ratios and or meaningful CRITERIA. Now you have compared actual results to industry averages in order to illuminate departures from other firms within the industry4. RECOMMENDATION: Based on aforementioned findings what corrective actions are deemed appropriate and what outcome is desired?
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