Question

The profit and loss statement is undoubtedly the most recognized tool of financial statements and activity-based reporting. However, it tells little, if anything, of performance on the "shop floor." Why is knowletige at both 30,000 ft. and on the ground critical for financial success?

Answer 1

A profit and loss statement is one of the financial statements of a company and shows the company's revenues and expenses during a particular period.The purpose of the profit and loss statement is to show managers and investors whether the company made or lost money during the period being reported.Profit and loss statement provides owners and stakeholders mostly with quantitative information which enable the stakeholders to take corrective decisions. Income statements should help investors and creditors determine the past financial performance of the enterprise, predict the future performance, and assess the capability of generating future cash flows using the report of income and expenses.

However certain qualitative information such as performance of shop floor ,efficiency of workforce, etc is also essential for analysing the correct financial success of an enterprise. Profit and loss statement is not providing stakeholders with such qualitative information . In order to tackle with this scenario,the enterprise can adopt shop floor management.

Shop floor performance management is a method to ensure the effective utilization of people, processes, and equipment. Changes in the shop floor might have a positive or negative effect on production performance. Therefore, optimal shop floor operation is required to enhance shop floor performance and to ensure the long-term efficiency of the production process.

Thus by adopting such methods and improving internal control system,the stakeholders can acquire both quantitative and qualitative information required for analysing the financial performance and success of an enterprise.