Financial Modeling Guide

A short video introduction to Managerial Accounting, which explains the key operating concepts and terminology critical for any financial modeling and analysis professional to know.

The video talks about how Managerial Accounting is all about providing economic and financial information to internal users and managers, essentially people who are running the business.

Information that a company needs to provide to external parties such as auditors, government regulators and stock exchanges, in most cases, may not be sufficient for business managers to run the business.

When studying Managerial Accounting, it is important to keep in mind the 3 main functions of management:

• Planning – Strategic planning and development of the company’s commercial goals and objectives.
• Directing – The process of actually “making it happen” such as by hiring and supervising people, building infrastructure, and managing operations.
• Controlling – The feedback loop of analyzing information to assess a company’s performance and identify areas of strengths and weaknesses.

The video also talks about the key managerial cost concepts of:

• Direct materials – The cost of materials that are directly used in a product.
• Direct labour – The cost of employees directly involved in manufacturing the product.
• Manufacturing overhead – All other costs related to manufacturing the product which you physically cant see within the product (e.g. electricity, property leases, etc).

The difference between product costs and period costs is explored. Product costs are essentially costs which sit on a balance sheet until a product is sold, whilst period costs are costs which are expensed in the time period in the cost is incurred.

Lastly the video touches on additional key topics relevant to managerial accounting, such as Value chain, Just in time inventory and the theory of constraints.

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