Managerial Accounting (Introduction 1/5)

In the dynamic world of business, managerial accounting (M.A) serves as a compass for decision-makers. By analyzing well-structured financial data, M.A empowers management to steer their organizations toward success. Let’s explore the three fundamental areas that constitute the bedrock of M.A: Internal M.A: This domain focuses on data generated within the organization itself. Whether assessing performance or devising strategic plans, internal M.A relies on in-house financial statements and proprietary data. Imagine it as a diagnostic tool, pinpointing strengths and weaknesses within departments and guiding resource allocation. Assessment Nature: Quantitative analysis reveals the company’s current position, highlighting areas for improvement and celebrating successes. Strategy Planning: Armed with insights from assessments, management sets precise targets and crafts action plans. It’s akin to plotting a course toward specific sales figures or operational milestones. External M.A: In contrast, external M.A looks beyond the company’s walls. It involves gathering data from external sources—industry benchmarks, market trends, and competitor analyses. This broader perspective informs strategic decisions and helps organizations adapt to changing landscapes. Hybrid M.A: As the name suggests, hybrid M.A combines elements of both internal and external approaches. It’s a versatile toolkit that adapts to unique business contexts. For instance, a company might blend internal performance metrics with industry benchmarks to optimize pricing strategies. Remember, these areas—ratios analysis, costing, breakeven analysis, and budgeting—are the building blocks of M.A. In the coming weeks, we’ll delve into each of them, unraveling their intricacies and providing actionable insights. Stay tuned for practical knowledge that will empower you as a decision-maker! 🚀📊

Managerial Accounting (M.A) is used in business in order to help management make decisions based on well-structured, analyzed and assessed financial data. This analysis will then be used in the decision-making process. Me personally I like to break down M.A in to three main fields. Later on, these three fields can be broken down even more in smaller sections. The further we break down a category the more specific and accurate data we can get in return. The three areas are:

Internal M.A
External M.A
Hybrid M.A

M.A can be broadly applied to help management make informed decisions in crucial areas of the business.

Internal managerial accounting (M.A) focuses in the data within the organization rather than data that can be found from any other external source. The internal M.A can be of an assessment nature or strategy planning nature. We use data that can be found in our own financial statements and in-house data.

Assessment nature: we use quantitative data to assess the current position of the company in our effort to identify deficiencies and problematic areas so that we can improve them, but also to identify our strong areas so we can know which departments or even which employees are doing performing well.
Strategy Planning: Having already determine our current position in the assessment above, we can now set accurate targets for the future. For example, we can set a goal of reaching a specific number of sales and formulate a plan of how exactly we are going to achieve that.(for example by taking advantage of our strengths identified above, we can now allocate our resources in a much better way rather than just randomly allocating them).

Some areas that the M.A is dealing with are:

Ratios analysis (performance)
Costing
Breakeven – targeting
Budgeting

Those are just some of the areas covered in managerial accounting and depending of the source of the data or the purpose of the analysis they Can be used in either of the Internal, external or Hybrid categories.

Stay tuned for the upcoming weeks as I delve into each of these four areas of managerial accounting, providing in-depth insights and practical knowledge in separate articles—one topic at a time.

1.Ratios Analysis