Swift print Ltd is an old well established printing company. It has its head quarters in Harlow, Essex and its printing factory in Leeds. Month end accounts are produced and copied onto a CD and sent it to Leeds for preparing ledger accounts and then again it come back to Harlow by taxi full of 3 boxes of paper. Then it is distributed to departmental managers to produce a summary of their activity for the month. This process of sending CD to Leeds and producing summaries take at least 5 days.
As the new financial controller for Swift Print Ltd:-
Whole procedure takes 5 days to produce a summary.
INEFFICIENCIES OF THE PRESENT SYSTEM:-
As a financial controller I found some inefficiencies of the present system are as follows:-
Collation of accounts at the end of the month, which can be made online or real time as there is internet facilities, if not then intranet facilities are available in this modern time. From doing this Swift Print can reduce their cost as well.
Sending across the captured accounting details via a CD to Printing Station, which can be transmitted by faxing, or scanning mechanism, etc.
The department managers produce the accounts summary sheet after receiving the printed copies from Leeds, which can be rather produced based on the cost codes they have used while capturing the accounting details itself as an end of day process
The entire accounting business process is paper based, which can be made purely online/offline in soft form that will eventually make the entire accounting practice paperless thus saving trees.
KEY INDICATORS OF THE PERFORMANCE:-
Key performance indicators are the key element for organization to achieve its goals.
As far as the key performance indicators are concerned some the identified indicators can be:
Raw Material Usage & Wastage:- here Swift Print Ltd are wasting their resources like petrol, time, days of production, by sending accounts from headquarters to the printing factory.
Production Statistics :-Swift print Ltd has to focus on time and resource that is personnel's and re-materialization of materials.
Accounting Practices:- taking too much time to produce a final month summary, instead they have to keep their book-keeping in one place rather than passing it to different departments of the firm.
FINANCIAL CONTROL PROCEDURES:-
Financial control is done to prevent the errors in a financial transactions.
Control procedure help an organization to achieve its objectives.
Individual or a part within the financial system performs the control procedure.
Effective control procedures is possible only when, the work duties are separated between employees performing different control practices.
There are 2 key stages of financial control procedure.:-
Manual transaction control
Automated transaction control.
Manual transaction control:-
This is further divide into 5 types:-
Review of transaction:- this includes, the review of expenses transferred, acceptance of award contract, approval of recharge, approval of whole financial information and payroll system.
Verification of receipt:- reviewing and appraising the report which is received.
Post-transaction review:- reviewing the ledger accounts, reports of card transaction, reports of payroll expenses.
Balance reconciliation:- reconcile monthly summarized accounts to know debtor's account balances. Also reconcile monthly petty cash accounts.
Balance analysis:- reviewing the expenses incurred due to the fluctuation in balances over the whole year.
This is further divided into 4 types:-
System accessing function:- access the requirement of the password of financial information system.
Data input:- check and format the data or telephone numbers.
Data validation:- to validate the fund, and account code of organization.
Data processing:- summarize and post automatically through system the invoice payment in ledger accounts.
CONCLUSION:- Thus, if the Swift Print Ltd follow the above financial and control procedures to ensure the accuracy of the system.
There are two types of stakeholders (internal and external):-
Employees :-workers of all levels in an organization
Management :- those who are managing the organization
Shareholders and owners:- those who owns the business fully or partially
Suppliers:- input of materials to the company
Creditors:- can be customers or other sort
bankers :- for financial transaction for the business
Financial :- status identity for the business like investors
Institutions :- that hold the company
Some are both internal and external
Competitors, government and regulatory agencies, auditors, researchers and academicians, representatives of others interest like brokers ,underwriters etc, potential shareholders
(B) Limitations of Financial Accounting
.Accounting is based on collective concepts which is followed by some generally accepted principles.. But there exists a lot of principles to apply on any one item. This allows some alternative arrangements with in the framework of those principles.
e.g.:- the closing stock of a business can be evaluated through different methods: like FIFO (First-in- First-out), LIFO (Last-in-First-out), Average Price, Standard Price etc. But we cannot compare the results of them.
Financial accounting does not provide information according to time
This is not a limitation by the use of highly sophisticated software application of financial accounting is used to keep records online and parallel accounts and the balance sheet is readily available almost instantly which are not feasible in manual accounting.
Financial accounting is designed to supply information about the cash flows and other details in the form of statements. These statements are in the form of Balance Sheet and Profit and Loss account for time period which is normally in a year. So the information is at its best of historical interest and only cross check analysis of the past need to be conducted.
Financial accounting is actually not allowed to supply information at shorter interval of less than a year as a tradition. With the advancement of computerized accounting now financial accounting can show profit and loss account and balance sheet on a monthly basis which overcomes this limitation. This allows to understand how the business fluctuations coming on every month and can analysis and react to it
1.2 Financial accounting does not take into account about important non-monetary details
Financial accounting doesn't give any place for the transactions of non- monetary in nature.
e.g.:-Business possess competition and technical innovations, efficiency of the employees and loyalty in the business, deviations in the value of money in the market etc. are the important aspects where management of the business is highly concerned. But accounting is not tailored to take into consideration of such issues. Thus anyone with financial information is, naturally, are restricted from crucial information which is of non-monetary in nature due to its absence.
1.3 Financial Accounting does not give analysis in detail
The information provided by the financial accounting actually is a collection of the financial transactions during the duration of a financial year. It also allows studying the overall fluctuations and details of the business information which all required, like the profit, cost and revenue of each and every product. In financial accounting detailed information as a product does not exist.
1.4 Financial Accounting does not reveal the current value status of the business
In financial accounting, the status of the business as of a particular date is provided by a statement called 'Balance Sheet'. In Balance Sheet the assets are displayed on the basis of entity usages. Thus it is believed that a business has relatively longer life span and is surely expected to continue to exist indefinitely, hence the value of the assets alters according to the market. The identified value of each asset if sold today cannot understand by studying the balance sheet.
(C) Non financial measure gives following advantages
These measures has closer to long-term organizational goals. The financial evaluation system do not deal with the progress related to customers requirement, competitor, and no other financial objectives like profitability, competitive strategy. It focuses only on the annual or short term performance against accounting.
Drivers of success in many industries are "intangible assets" which are intellectual capital and customer loyalty, where as hard assets allowed on to balance sheets. Non-financial data provides indirect, quantitative indicators of a firm's intangible assets whereas it is difficult to quantify intangible assets in financial terms.
Non financial are better indicators for future financial performance. Though the ultimate goal is maximising financial performance, current financial measures may not capture long-term benefits. As for example, a firm invest money in research and development or customer satisfaction programs, it may cost the firm for certain period they incurred, results in reduced profit. But if the program of research and customer satisfaction is successful it can improves future profits in the market. Thus non-financial data provide the missing link between the financial results and beneficial activities providing forward-looking information on accounting or stock performance.
(D) BUDGETARY CONTROL:-
CHARACTERISTICS OF BUDGETARY CONTROL:-
To plan and forecast the levels of activities carried out in business.
To co-ordinate different levels of activities in business so that these activities may work with co-ordination to each other.
To control the cost and performance of business.
ADVANTAGES OF BUDGETARY CONTROL ARE AS FOLLOWS:-
Gordon's Ltd objectives are established such as profit maximization, large market shares, ore employment opportunities, stability of finance, supply the quality desktop table lamp. By doing this Gordon Ltd will know where its business is going.
Gordon Ltd can identify the targets of production, sales, cash which can be achieved by its level of efficiency.
In order to ensure the budgetary objective is achieved there be should coordination between each department and individual in Gordon Ltd.
PREPARATION OF BUDGETS:-
Budget is prepared because it is a plan which is based on future targeted activity and is used to control those activities. There is a chances of making number of assumptions to estimate the financial outcome, and the best assumption which meets the firm's objective and is in the capability of the firm is chosen.
LIMITATION OF BUDEGTING:-
Employees will be de-motivated as they fell targeted budgetary figures are very high to achieve.
Budget is always a result oriented and not the performance oriented.
Budget loss it relevance with time as market position is never same.
Wrong budgets can lead wrong information to both employees
Wrong budget means wrong estimation and that makes a wrong decision which directly leads to guaranteed failure.
BUDGET INFORMATION FROM DIFFERENT DEPARTMENTS:-
SALES BUDGET FROM SALES DEPARTMENT:-
Sales budget is the first step in planning process. Sales focus on so many other features of organization such as employees and their accommodation to be engaged.
The sales manager analyse the whole market and consider question likes, where the table lamp to be sold, the geographical areas in which table lamps to be sold size of the market when to be sold, what should be the price, how many number of units to be sold.
By preparing sales budget it gives the idea of correct price charged, increase or decrease of sales, and level of activity.
Thus, the sales budget, set the monthly targets for each geographical areas and gives the clear picture of total sales.
THE PURCHASE BUDGET FROM PRODUCTION DEPARTMENT:-
Purchase budget depend on the sales budget for the budget period and also on increase or decrease in planned stock. The production manager while preparing purchase budget should make sure, whether all the purchased goods are sufficient to make a delivery to customer when and where required.
Cash Budget from Finance Department
This budget shows the implication of cash in other expenses budgets like purchase, administration, selling and distributing the goods etc.
After finalizing all the above budget, the overall results are brought together in master budget. Master budget shows the budgeted profit and loss and budgeted balance sheet. It is the management responsibility to review other results are satisfactory in terms of profitability and stability of finance. If the results are unsatisfactory then, action must be taken to make improvement.
(A) Business valuation:-
Business valuation is very important and has become central part of corporate background. This corporate background has been observed by all the changes around the organization in recent years, such as acquisitions and mergers, changes in corporate structures, purchases of shares, etc. All this changes of activities in organization stands on its valuation. For accounting purpose business valuation is not necessary. But by using valuation methods, it can be helpful to the company's angel investors, venture capital companies, acquirers, etc.
Business valuation can be done by four techniques:-
Accumulation of assets:- Accumulation of assets means liquidation of the assets of the company and also by paying all its liabilities.
Discounted cash flows:- This focuses on the generation of cash of particular business. This method uses the free cash flow of the company in future discounted by weighted average cost of capital and risk factors.
Market value:- this method is used only by quoted companies. By multiplying the total number of shares issued with quoted shares, market value can be determined. And this valuation shows, at what market price the shares should be paid. This valuation shows the performance of the company, and its abilities to return the investments by the investors.
Valuation of Price earnings:- This means the market divide by the earnings per share of particular company. And further if multiply the price earnings with net income shows the valuation of the company.
Value of Vodafone by using its statutory accounts :-
As we can see from (appendix), that Vodafone's shareholders are increasing, which means they are receiving more cash flows and also the reputation of their company is increasing.
By having look on the borrowings of the Vodafone, Long term borrowings has been increased by £5.0 million (approximately) which shows that this company is taking more time to repay its borrowings. While Short term borrowings have decreased which shows company is paying is short term borrowings as soon as possible.
Retained losses has been decreased from comparing to last year but in order to maintain Vodafone's reputation it is incurring losses but as its shareholders are increasing it has opportunity to earn profit next year.
Debt Equity Ratio has increased from 4.27:1 (2007) to 5.42:1 (2008) which is very bad , normally this ratio must be between 1:1 and 4:1 , which shows Vodafone is using all its assets over its equity shares issued.
Vodafone's earning per share has also increased which shows the attractiveness among the business angels, investors, venture capitalists etc.
Also Vodafone's revenue is increasing that means it has increased its customers and has huge publicity to stand in the competitive market.
(B) SOURCES OF FINANCE:-
Sources of finance means the cash generated from outside the business. It can be business angels, venture capital and business growth.
Vodafone's sources of finance are a bank loan which includes, Vodafone Americas, Vodafone Essar limited, Vodafone holdings SA Pty Ltd, Vodafone telecommunications investments SA.
(C) AREAS OF CORPORATE RISKS WHEN RAISING FINANCE:-
Credit risks:- Vodafone Ltd consider its credit risks as bank deposits, repurchase of agreements, money market fund investments, other investments, such as debts, bonds etc, commercial paper investments which shows a long term credit ratings
Liquidity risks: - Vodafone Ltd manages short and long term liquidity by raising its own fund on capital markets. Vodafone has more than $10 billion (approx) committed undrawn bank facilities and more than £4.5 billion (approx) on commercial paper programmes.
Market risks:- Market risks can be occurred because of Vodafone deals in the world wide and so there is difference in the monetary value of countries. Interest rates will be same for those where assets and liabilities are not nominated in other currencies. But there will be no effect on equity.
Vodafone also recognises the foreign exchange movements in capital that is the investments done to operate foreign markets. But as a result there is no effect on equity the currencies differs.
Equity risks: - Vodafone has Equity investments which is entitled to a equity risks in following China Mobile Ltd and Bharti Infotel Pvt Ltd.