One of the most important factors in decision making process is information from various sources. Financial Information play a vital role in the process of decision making and help management to make a perfect strategic business plan for the organization to achieve its goal. However, most financial informant comes from the financial statement of the company which includes Income Statement, Retain Earnings, Balance Sheet and Cash follow Statement of a particular period of time. Financial Ratio Analysis are use to compare within or against competitor performance. In addition, Governance in private and public sector is differ in structure of the corporation, by rules and regulation, accountability of the board as well as the decision process also vary between private and government owned public limited organization. 2. Task 1: You are a senior manager in small but growing company; prepare a briefing paper for decision making for the board of management
Why Financial Information is required in Formulating Business Strategy?
Financial information is very important for making Business strategy for the organization. Financial information generally includes financial statement and reports for a particular period of time in numeric value. Financial Statement consist Income Statement, Balance Sheets, Retain Earnings as well as cash follow. Financial Information helps investors and creditors of the company to evaluate the company’s performance over time (Smith et. al., 1988). However, the information management get from Financial Statement is vital for whole company’s business strategy and particularly it helps marketing department to formulate a Strategic Marketing plan for the organization. It gives the information about how a product is gardening present in relation to its cost, than management can decide to enhance marketing effort and promotion budget for that particular product. On the other hand if that product is no longer making enough money than management can decide to cut off the promotion budget for that product because of its non-viability (Morden, 1993). In addition, from financial Information management of the company who makes the overall business plan for the company can know the overall financial situation of the company. Balance Sheet of the financial statement provides the company’s total Assets and Liabilities and Equity information. Financial information also provides operating results of the organization such as total revenue and expenditure and profit and loss for a particular time (Smith et. al., 1988). Also, financial information provide the cash follow statement of the organization which help management to understand that weather company has enough money to pay its expenses and assets purchase for the operation of the organization (Elliot, 2008).
The Major issue involved in Business Strategy.
Business Strategy of the organization is the method to achieve its final Goal. Generally Business Strategy is a long-term planning, mostly 3-5 years or sometimes even longer than that. There are any issue involved in Business Strategy as it is the means of success of the organization. Business Strategy can be considered as three stages. They are, Strategic Analysis, here company find out the companies Strength, Weakness, Opportunity and Threats (SWOT Analysis), Strategic formulation, here the choose is made what to do, and Implementation of the Strategy means bring the strategy into action (Wit and Meyer, 1998). However, to implement the business strategy in action management face communication problem as well as organizational structure could be another problem. Strategy may need change in the way of working of the employees of the organization but workface could resist to change and become de motivated thus decrease the workforce efficiency of the organization (Morden, 1993). In addition, another main issue of business strategy is resource issue. For example, raise investment for new factor for business expansion or meet demands. Business Strategy also concerned with on what product or service to assign the major resources. In addition, business strategy also concern with business activities such as what where to made for competitive advantage (Johnson and Scholes, 1999). However, another common problem arise in business strategy is conflict among the department within the organization to allocate the funds. However, to make a business strategy for a Small Organization management face many problem such as access to skilled staff, government rules and regulation, fair environment for competition in market, and access to finance (Johnson and Scholes, 1999).
Therefore, to implement the strategy successfully company must adopt perfect management process or structure to bring the needed change.
The key financial information required when strategic decision are made.
One of the most important factors in decision making in business is quality information for the business external and internal environment or performance. Most of this information comes from the accounting information system and financial statements of the company. Financial statement provides realistic business performance or condition of the organization to the management to make strategic decision in the business process (Smith et. al., 1988). However, key financial information includes company’s profitability, liquidity, leverage, activity, economic ratio. The entire ratio comes from the balance sheet of the organization. Liquidity ratio analysis gives the information about the company’s ability to pay its current liabilities. Liquidity ratio 1:1 is perfect for the organization, if it less than that management can take measure how to solve this problem. Also, profitability ratio gives the information about the return on Investment Company making for the shareholder of the organization. In addition, Economic ration provide the measure about the revenue in terms of expense of the organization. If expense is greater or unexpected than management can take measure to identify the problem ((Elliot et. al., 2008). Financial Information helps company’s management to compare present situation to previous situation as well as compare against competitor performance in same time of period. Financial information let management to see the business growth or loss. Also it lets management know the market position in terms of consumer spending on the company’s product. From financial data company can forecast the future demand of the service or product of the company and stock more efficiently to decrease inventory cost. Financial information also help management to decided where the demand of a particular product in which time of the year. It also helps management to decide the price change of the product increase or decrease (Smith et. al., 1988). 3. Task 2: Choose a large Organization to research and obtain its latest published financial information covering the last three years. Prepare a report which contains
Why the published financial information is structured in that way?
The chosen company is Apple Corporation and its Financial Statement given in Appendix 1 Financial Information is very important in modern economic development; organization needs to prepare the financial statement that is accepted by the professional standard and firm’s industry practice. Generally company published financial report at the end of quarter or year. However, Financial statement includes the financial information of the company provides all necessary financial information (Higgins, 2007). GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) oblige to every organization to publish financial statement in that structured way that are fair and inclusive. Structure of the financial information data is essential because it’s accepted by the professional standard and helps the potential user (international or own country) to understand organizational picture easily (Smith et. al., 1988).y. The main Stakeholder who will use the published information and for what purpose The user of financial information is following below (Higgins, 2007): Managers: They are the most common and day to day decision maker. They need to know financial information to know the how things are going financially and present financial status of the company to make decision. Owner or Share holder of the organization: Owners always want to know that their business is making profit or not. Actually, they want to know all types of financial situation to make decision about their investment. Investors: Investor maybe present or potential, in order to make decision about their investment they need to know financial information about the company. Creditors: Another kind of user (bank or investment firm) of the financial information, they always want o know the risk involved to their credit. Tax inspector needs the financial information in order to calculate taxes payable.
An explanation of where both long-term and short-term finance has been raised and used
Short Term Finance has been raised and used: The short-term finance of the Apple Corporation has been raised from Account Payable, Accrued Expenses, Current Income Taxes Payable, Other current liabilities as well as unearned revenues. However, total short term investment of the Apple Corporation is $18,201 million (Appendix) Long Term Finance has been raised and used: The long term finance has been raised from Common stock, Retained earnings and comprehensive income and used in Plant and equipment, long term investment, inventory account receivable etc (Appendix)
Calculation of the Key financial ratios, including cash follow analysis and a comment on the findings.
There are various types of financial ratio such as profitability, liquidity, capital structure, stock market ratio. Key Ratio Analysis from the information in Appendix: 1. Net Profit margin for the year 2012: Net Profit/Sales * 100 = 41733 / 156508 * 100 = 26.66% Net profit margin for the year 2012 is 26.66% is not satisfactory enough. 2. Current Ratio for the 2012: Current Assets / Current Liabilities = 57,653/38,542 = 1.5x Current ratio for the year 2012 is 1.5x which is safe. 3. Total assets Turnover: Cost of Goods Sold / Total Assets =87,846 / 176,064 = 0.49x Total assets turnover for the year 2012 is 0.49 which is not good. 4. Current assets Turnover: Cost of Goods Sold / Current Assets = 87,846 / 57,653 =1.5x Current asstes turnover for the year 2012 is 1.5 which is good. Cash follow is the number appears in the cash follow statement by operating activities. Cash follow is the sum of the company’s net income. There are three main category of cash follow. (Cash follow from operating, investing as well as financing activities) (Wood, 2008).
An explanation of the different methods that could be used for appraising capital projects and the strength of each
Different investment appraisal technique has been used by the companies. There is no single method of appraisal technique. This is a mechanism help the management for decision making in organization. The main two method of Appraisal Technique is discussing below (Elliott et. al., 2008): Accounting Rate of Return: This is calculated by dividing the average annual profits by the average investment cost (Baker and Wallage 2000). Internal Rate of Return: This is an alternative method to decide capital investment decision. It represents the true interest rate that earn on investment over time (Baker and Wallage, 2008). Capitals Appraisal Technique led to efficiency and increase the profitability of the capital invest.
An indication of the weaknesses of published financial information.
Financial Information (ratio) is sometimes using to compare business performance with another company but it may not represent equal value. Different accounting method use in companies can distort comparison. Also, financial ratio does not have any range which present good or bad ranking. In addition, it is possible to calculate same ratio by using different method. Another vital weakness of the financial information of the organization does not give the productivity and skills of the workforce in the organization (Higgins, 2007). 4. Task 3: Choose two organizations one from private and one from not in the private sector and prepare a report;
Compare the difference in corporate governance, legal and regulatory requirements between the organizations.
Corporate Governance is the method by which companies is directed and controlled. The Broad of director is the main responsible person in corporate governance and selected by the Shareholder of the corporation. There are many differences between Private and not private sector Companies in Corporate Governance. For the private limited company we have selected New Look Private Limited and for non-private company owe have selected Transport for London (government owned). They are following below (Bozeman and Pandey, 2004). 1. Difference in Organization Structure: The main difference is the Organization Structure of the companies. New Look use outsider/insider model but on the other hand Transport for London (TFL) is statutory authority or state owned enterprise (Clark and Stewart, 1998)). 2. Regulation: New Look Regulated by Corporation Act and regulated but on the other hand TFL regulated by Commonwealth Corporation Act or State Owned Corporation Ace 1992, Statutory legislation and regulator and regulated (Nutt, 200). 3. Objective and Agents: New Look main interest is to make profit for Shareholder but TFL main interest is Public good (Bozeman and Pandey, 2004). 4. Independence: New Look board is legally responsible but TFL responsible is diffused (Nutt, 2006). 5. Authority: New Look authority is Board but in TFL main authority is Department Board of Govt (Bozeman and Pandey, 2004).
Compare and contrasts the accountability for and roles of manages in making business decision.
Accountability and Responsibility In private sector (New Look) Corporate Governance Board is responsible to shareholder for their action but on the other hand in Public Sector (TFL) board accountability is spread. In the private sector decision made by the management is generally forced by the market situation but on the other hand public sector management forced by the political situation. It is like one is about business and another is about Government (Bozeman and Pandey, 2004). However, different environment force different decision taken by the management in both sector. Nutt (2006) found that decision making in Private sector manager are more analysis based and on the other hand in public sector are more bargaining based. Also, private sector decision made by manager is more opportunity based but in public sector is more problem based.
Accounting Information system provide the necessary accounting information needed to get the overall situation of organization. It reflects the total financial strength and weakness of the organization. Although, the financial information does not include workforce, external environment but it is acceptable to everyone to Measure Company’s performance over the year. Governance in corporation varies from private to public limited as well as the decision making process of the manager.
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