"Financial Management is the process of planning decisions in order to maximize the owners wealth .Financial managers have major role in cash management, in the acquisition of funds and all aspects of raising and allocating financial capital, taking in the acquisition of funds, and in all aspects of raising and allocating financial capital, taking into account the tradeoff between risk and return. Financial managers need accounting and financial information to carry out their responsibilities".
Financial Management goals:-
Optimizing the organization net worth (Share holders capital appreciation ) and financial reputation
Maximizing the profit and also maintaining the sustainable growth of the organization
Robust the financial decision making system
FM ensures effective monetary controls to meet the global financial regulatory standards and protect the customer interests
Risk management and assist to gain competitive advantage
**Time value of money** -this is critical factor for investment decisions and long term returns
Managing cash flows, funds flows and stock management by moderating risk
SECTION 1
Q1.a) Internal and External Financial data
The data collected from the internal and external auditing sources is the reliable and valid financial data and also the data from security exchange commission is correct data.
The main external source is websites like Bloomberg terminals and private financial vendors.
The internal sources like "total cash flows in the firm, balance sheets, profit & loss accounts, pathological report and capability confound".
Primary (basic) Data: - firm financial information of widely scheduled companies is usually the simplest to achieve and be able to attain from a large number of financial data websites. Main information from the "United States Securities and Exchange website (www.sec.gov)", in addition to "FreeEdgar.com". Company annual reports are also available from these sources, periodical reports, and all remaining SEC fulfilling. These data is our 1st selection for data. The GSK own websites is additionally a input for the these primary sources. Mind that some websites get the information from the main SEC websites and kept it in own blogs into their possess styles, because of this type action we may be lost and changed very important data.
Secondary (derivative) Data:- "(Wall Street Research). One of the best local sources of good Wall Street information is the BYU Library. Go to the BYU Home page, Libraries, Harold B. Lee Library, Find Articles, the click on the "Find Articles by Subject." Select Business". From this we got a more and more data. In depth research on "firm outlines, magazines/news, histories like old records, saving and venture reports, banks, rank of the company, rules and policy claims, number of and quality of products/out puts, industry impression, and relations. These are all give data of the company.
Organization accounting system, from managers and line managers, from customers, dealers, contractors, traders, sellers and brokers from these we get reliable internal data.
Q1.b) Market take advantage of diminish the entire item, beginning from the fundamental ethics the entire applicable facts is under at the present imitate by asking price. Rates are affecting in to development.
efficiency
cash flows and liquidity in the company
spending
monetary structure /monetary process
initial investors - depositors ratios
profit and loss accounts/Balance sheets
Q1.c) The foremost carrying out in the business is computer. "Information technology (IT)" distorted the technique or logic of accounting methods, records/facts store up, restore the data, and organising. This hottest format head to entirely altered inspection pathways. The riot revolves into an energetic expansion of the processer company manipulated everlasting, quick automatic progress.
Computer big business world, other IT tasks-linked actions
*opening reviews by means of Information technology
* Full precedence of processers
* AUDITAPE: go from side to side checking from Information technology, as of the starting, checkers from outside the company had a complication period in inspection through the processor. Mainly, the higher division of checkers inspection presently just about the processors give no want, the major section, and the output of "EDP" on the review.
Q2) All though extra complicated evaluation methods like "IRR, CFROI, and DCF modelling have come along, ROE has proven enduring".
At first stage, this creates intelligence. ROE concentrate on arrival to the investors of the firm. This Para gives fast and simple to recognize. But ROE is difficult to understand because lots of likely problems.
Q3.a) Financial performances are analysing to greet the external treatment responsibility and also used purposes of decision making. This analysis plays a vital position in making the structure of professional decisions.
" Vertical and Horizontal Analysis, Ratios Analysis" are the two methods for evaluating the financial performances. . A ratio analysis is a numerical measure by way of which connection involving two or a range of statistics can be evaluated or calculated. Ratios are finding out by dividing one figure by another figure.
Q3.b) R&D is the one of the important part of the form, they need high money to introduce demand, unique and quality products, due to the cost of chemicals and research equipment are very high, they should be needed financial information.
Marketing directors are also need financial information to advertise the products within the budget. The remaining stakeholders are also financial information based on their requirement
And the other stake holders like supplies of the firm, government ect. All of the stakeholders required financial information.
Q3.c) Below are the some compulsory elements to describe the annual reports.
Revenues and cost of capital:- Revenue generation and cost of the production -total expenditure that has incurred from procurement of raw material to the consumer
Retained Earnings:- It is a most significant element to discuss in board meetings-issuing dividends to share holders and for the future investments and also for the mergers and acquisitions.
Q4) The principal objective is to establish sound foundation for financial frame works and also create accessibility for the global markets.
Companies should always adhere to compliances polices ect
FASB
Protect stake holders interest
Tax allowances and subsidising and Gauzing the financial performance of the company ect
IFRS (international financial reporting standards) and FASB (financial accounting standard board) these two are very useful to maintain the accounting standard in Japan.
SECTION 2
An) Comparisons:-
. Budgets are calculated for major section of the industry -"Purchases, Sales, Production, Labour, Debtors, Creditors, and Cash".
It is used to examine and manage. An essential cause for constructing a budget is that organisation is capable to apply budgetary control to examine and manage the actual production. It means the charge can be undertaken to amend the process of the organisation as time exceeds, or probably to modify the budget if it happen to unattainable.
A budget is a branch of the method for motivating directors and other labour to attain the goals of the firm.
Contrast:-
It may run to worthless management. For example a manufacturing department might accomplish additional production that the retail division discover problems to selling. To prevent such worthless management, budgets require to be fixing at practical stages and correlated and synchronized over all sections inside the business.
The budget may slow down - employees who are not participating in assenting and preparing a budget, it is forced upon those employees, they will experience that they are not have it.
2. Tools available for Budget preparation
"Payback Period Method
Cost benefit analysis
Breakeven Analysis
Net present value
Internal rate of return
Weighted average cost of capital"
These 6 are the tools for budgeting , consider the every situation NPV for calculating the budget and the best tools for enter in to the Japan market.
3. a) SALES BUDGET)
Sales budget = Units per annum * Selling price
Selling price of M is 10% increased every month and R is 20% increased every month
In month October the sales budget is 2400*4.4=£10,560
Table1:- six months Sales budget-- from October
October
November
December
January
February
March
Miracure
£10,560
£12,584.3
£14,907.02
£18,155.4
£19,326.32
£22,321.67
Rotarix
£16,560
£22,118.34
£28,512.46
£39,813.34
£47,775.47
£58,227.22
Total
£27,120
£34,702.64
£43,419.48
£57,968.19
£67,102.79
£80,549.89
3. b) LABOUR BUDGET
The labours are skilled and unskilled labour. £30 for skilled and £15 for unskilled.
Number of hours for Miracure is 800 and product Rotarix is 900 for each month.
Product M skilled labour can work 400 hr, unskilled labour can work 400 hr. Product R skilled labour can work 450 hr, unskilled labour can work 450 hr.
Labour budget = hours worked * wage per hour
In October Miracure Skilled = 400hr*£30= £12,000
Unskilled = 400hr*£15=£6,000
Table2:- six months Labour budget-- from October
October
November
December
Skilled
Un skilled
Skilled
Un skilled
Skilled
Miracure
£12,000
£6,000
£12,000
£6,000
£12,000
Rotarix
£13,500
£6,750
£13,500
£6,750
£13,500
Total
£38,250
£38,250
£38,250
January
February
March
Skilled
Un skilled
Skilled
Un skilled
Skilled
£12,000
£6,000
£12,000
£6,000
£12,000
£13,500
£6,750
£13,500
£6,750
£13,500
£38,250
£38,250
£38,250
3. c) TRADE RECEIVABLES BUDGET
Trade receivable budget or closing debtors = (Opening debtors + Credit sales (or) Sales budget) - Cash received
Table3:- six months Trade receivables budget-- from October
October
November
December
January
February
March
Opening debtors
£2,800
£28,820
£61,822.64
£78,121.12
£101,386.67
£125,069.98
Credit sales
£27,120
£34,702.64
£43,419.48
£57,968.19
£67,102.79
£80,549.89
Total
£29,920
£63,522.64
£105,242.12
£136,089.31
£168,489.46
£205,619.87
Cash received
£1,100
£1,700
£27,120
£34,702.64
£43,419.48
£57,968.19
Closing debtors
£28,820
£61,822.64
£78,122.12
£101,386.67
£125,069.98
£147,651.68
3. d ) TRADE PAYABLES BUDGET
Trade payables budget = (Opening creditors + Credit purchase) - Cash payments
The Credit purchases are £2,400 in October is increased by £500 per month up to December and reducing 12% in January and remaining constant thereafter.
Table4:-six months Trade payables budget-- from October
October
November
December
January
February
March
Opening creditors
£4,900
£6,300
£7,400
£8,700
£9,292
£9,382
Credit
purchase
£2,400
£2,900
£3,400
£2,992
£2,992
£2,992
Total
£7,300
£9,200
£10,800
£11,692
£12,284
£12,376
Cash payments
£1,000
£1,800
£2,100
£2,400
£2,900
£3,400
Closing creditors
£6,300
£7,400
£8,700
£9,292
£9,384
£8,976
3. e ) PRODUCTION BUDGET
Production budget = (Sales + Closing stock) - Opening stock
We get sales values from sales budget table.
Closing stock is 40%of sales value.
The opening stock is closing stock of previous month.
Table 5:-six months Production budget-- from October
October
November
December
M
R
M
R
M
Sales
£10,560
£16,560
£12,584.3
£22,118.34
£14,907.02
Closing stock
£4,224
£6,624
£5,033.01
£8,847.12
£5,963.03
Total
£14,784
£23,184
£17,617.31
£30,966.46
£20,870.05
Opening stock
£1,200
£1,100
£4,224
£6,624
£5,033.01
Production budget
£13,584
£22,084
£13,393.31
£24,342.46
£15,837.04
January
February
March
M
R
M
R
M
£18,155.4
£39,813.34
£19,326.32
£47,776.47
£22,322.67
£7,262.14
£15,925.16
£7,730.26
19,110.38
£8,929.39
£25,417.54
£55,738.50
£27,057.58
£66,886.85
£31,252.06
£5,963.03
£11,405.13
£7,262.14
£15,925.16
£7,730.26
£19,454.51
£44,333.37
£19,795.44
£50,961.69
£23,521.80
SECTION 2. B)
1. an) Values flexible budget = values in standard budget * (Units sold /unit)
For example: Revenue in flexible budget = £120,000*(7,000/7,600)
= £130,286.8
Variance=actual result - flexible budget
For example: In Revenue =132000-130286.8=1714.2
The below table represents total flexible budget values calculated based on actual production values
Standard budget
Flexible budget based on actual results
Actual results
Variance
Units sold
7,000
7,600
7,600
Revenue
£120,000
£130,286.8
£132,000
A 1,713.12
Variable costs:
Direct materials
£40,000
£43,428.6
£45,500
S £2,071.4
Labour
£30,000
£32,571.43
£34,200
S £1,628.57
Variable overheads
£21,000
£22,800
£26,000
S £3,200
Total
£91,000
£98,800.03
£106,700
Contribution
£29,000
£31,486.77
£26,300
Fixed costs
£23,000
£2,4971
£2,5150
A £178.57
Operating income
£6,000
£6,515.34
£1,150
S £5,365.34
B.2 Caused of Variance:-
From the above table the below factors are the causes of the variance.
No specification is prepared for rubbish, spoilage, equipment fails, and the like.
The degree of implementations that directors can complete by reasonable amount of attempt.
Development in one section could tend to development in remaining sections and vice versa.
Based on the above points to improve the performance and profit result of the company.
SECTION 3
2. an) Net present value (Cost of capital is 10%)
Total in flow
Initial capital is £4.1millions
Revenue from operation is in year one = £1,800,000 it is raising by 4% in each year
In 2nd year £500,000 granted from Japan government
Residual value at end of the year is £1,500,000
Revenue of 2nd year is = £1,800,000+ {£1,800,000*(4/100)}.
The table shows total income:
Y1
Y2
Y3
Y4
Y5
Y6
Residual value/income
-
-
-
-
-
£1,500,000
Grant from Japan government
-
£500,000
-
-
-
-
Revenue from operation
£1,800,000
£1,872,000
£1,946,880
£2,024,755.2
£2,105,745.41
£2,189,975.22
Working capital
£550,000
-
-
-
-
-
Total in flow
£2,350,000
£2,372,000
£1,946,880
£2,024,755.2
£2,105,745.41
£3,689,975.22
Cash schedule:-
The labour expenditure is £60,000 in 1st and 2nd year there after it is raised by 3%.
The cost material is £500,000 in 1st year thereafter it is raised by 5%.
Administration cost is £50,000 it is same for every year.
Marketing cost in 1st year is £150,000 and 2nd year to 4th year is £250,000 after onwards 2% go up every year.
Cost R&D of the company is expected to be £350,000 in 1st year after it is raise by 3% in each year.
The below table represents total 6 years cost schedule of the project
Y1
Y2
Y3
Y4
Y5
Y6
Labour cost
£60,000
£60,000
£61,800
£63,654
£65563.62
£67,530.91
Material
£500,000
£525,000
£551,250
£578,812.5
£607,753.12
£638,140.78
Administration
£50,000
£50,000
£50,000
£50,000
£50,000
£50,000
Marketing
£150,000
£250,000
£250,000
£250,000
£255,000
£260,100
R&D
£350,000
£360,500
£371,315
£382,454.45
£393,928.08
£405,745.93
Total
£1,110,000
£1,245,500
£1,284,365
£1,324,920.95
£1,372,244.82
£1,421,517.62
Net cash flow = total income - total cash schedule
Present value = net cash flow*cost of capital
Net present value = - initial value + total present values
NPV (cost of capital is 10%)
Net cash flow
Discount factor 10%
Present value
Initial capital + working capital
-1
-£4,650,000
Y1
£1,240,000
0.9091
£1,127,284
Y2
£1,126,500
0.8264
£930,940
Y3
£662,515
0.7513
£497,746
Y4
£699,834.25
0.6830
£477,986.79
Y5
£733,500.59
0.6209
£455,430.51
Y6
£2,268,457.6
0.5645
£1,280,544.31
Net present value
-4,650,000+4,769,934.61
119,934.61
3.an) the discount factor is altered to 8% the NPV is
Net cash flow
Discount factor 8%
Present value
Initial capital + working capital
-1
-£4,650,000
Y1
£1,240,000
0.9259
£1,148,116
Y2
£1,126,500
0.8573
£965,748
Y3
£662,515
0.7938
£525,904
Y4
£699,834.25
0.7350
£514,378.17
Y5
£733,500.59
0.6806
£499,220.50
Y6
£2,268,456.6
0.6302
£1,429581.34
Net present value
-4,650,000+5,082,948.01
432,945
Likely causes
If your organization project or loan is not in risky then a firm is going to cost you a lower rate of return on the money- hence you pay less for the money
When the money in the bank is low it will reduce the interest rate.
To reducing the cost of labor and
They create payment for usual failing, spoilage, rubbish, and destructive time.
In short periods develop the new demand products and decrease the marketing cost, producing the value products by using the less and cheap value of raw materials
4. an) Internal rate of return
"IRR= NPV at lower rate + {NPV at lower rate/(NPV at lower rate - NPV at higher rate)}"
"Here IRR is = £432,946.47"
5. an) Strategic repercussion
1. Possible advantages
2. Possible troubles
Net present value is greater than zero so this is possible benefits
So many conditions are simple problems they are financial condition, labour cost in the Japan, sources for raw material, political condition may be possible troubles.
