Often the hardest part of starting a business is rising the money to get going. As a newly appointed Finance manager of Melaleuca Wellness Company distributor in Malaysia with the Head office at Bangsar,Kuala Lumpur, present an idea of how to turn it into a successful business by having other outlets.
You need to decide:
How much finance is required?
When and how long the finance is needed for?
What security (if any) can be provided?
The finance needs of a start -up should take accont of these keys areas:
Set-up cost(the cost that are incurred before the business starts to trade)
Starting investment in capacity( the fixed assets that the business need before it can begin to trade)
Working capital( the stock neede by the business- e.g. raw material + allowance for amounts that will be owed by customers once sales begin)
Growth and development (e.g. extra investment in capital)
Task 1
Make through research on the above company, identity and briefly explain the sources of finance available for the expansion in the distribution of its line of products and highlight the implications of such sources of finance.
Task 2
From the above, explain the importance of financial for Melaleuca Produsts and describe the impact of finance on the financial statements.
Task 3
Obtain a Financial Statement of the company showing its two (2) consecutive latest annual statements. Compute for its profitability and liquidity ratio. Compare and comment on the result of your two (2) years calculations.
Task 4
Analyze Melaleuca's business environment through its consolidated results as shown in the Financial Statements.
TASK 1
INTRODUCTION
The various sources of finance can be broadly classified into two categories, equity capital and borrowed capital. The proportion between these two categories of funds may vary considerably from company to company, depending upon the nature of the project, its size, location, background of promoters and expected profitability. Equity capital does not involve any fixed charge like loan for repayment of principal and payment of interest. It serves as a cushion in the event of unfavourable conditions and operational difficulties. However, equity capital is more costly than term loan due to corporate taxation policy in our country.
Interest paid on term loan is a deductible item of expenditure for the purpose of paying the tax. But dividend on equity or preference capital is to be declared from net profit. In other words, the company have to earn 20% to declare dividend at the rate of 10% (presuming the taxation rates for that company at 50%). Although term loan may be cheaper than equity, the institutions will not commit to provide the entire finance by term loan because they will not have any cushion and asset coverage for the loan to be provided by them. The debt-equity ratio is generally allowed about 1.5: 1 depending on the nature of the industry, size of the project, its location, promoters background, etc. Higher debt-equity ratio is allowed for projects promoted by technocrats, large sized capital intensive projects and also projects located in backward areas.
BODY
I get information from my thorough research that many departments step on into Melaleuca Refugee Company to give finance help. First of it is, Australian Government. One of the department that giving funds from Australia is department of immigration and citizenship. The purpose of the Department of Immigration and Citizenship is to build Australia's future through the well-managed movement and settlement of people. Facilitated by Melaleuca with funding from the Department of Immigration and Citizenship, the forum is attended by a diverse array of organisations and service providers who share information, discuss issues and form collaborative partnerships to improve service provision and tackle challenges. Then, department of health and ageing. They are supporting universal and affordable access to high quality medical, pharmaceutical and hospital services, while helping people to stay healthy through health promotion and disease prevention activities.
Then, Department of Families, Housing, and Community. They are helps to support families and children through programs and services and benefits and payments. Further support is provided through grants and funding for organisations providing services for families. Melaleuca was fortunate to receive funding from the NT Department of Children and Families to deliver this alternative model of conflict resolution to newly emerging communities of refugee background. The 18-month pilot finished in June 2012, and it is greatly appreciated that funding will continue in 2012-13. Furthermore, supports Indigenous Australians through a range of programs and services including closing the Gap initiatives. Services and indigenous affair, also provides grants and funding to support Indigenous organisations and individuals.
Apart from Australian Government, Northern Territory Government also giving funds to Melalueca Refugee Centre. The Northern Territory is governed according to the principles of the Westminster system, a form of parliamentary government based on the model of the United Kingdom. Melaleuca Refugee Centre delivers a parenting program that is funded through the Northern Territory Department of Children and Families called Tips and Ideas on Parenting Skills (TIPS). The TIPS Program is offered to refugee families from 12 months post arrival when unanticipated issues around adapting to the new cultural environment emerge. The department of children and families held Foster Kids Darwin Christmas Party on 2012 and they sponsored lots. Then the department of chief minister of multicultural affair, they are sponsoring grants and programme awards. Moreover the department of justice and Department of Natural Resources, Environment, the art and sport also giving fund to this centre.
Figure: (Unexpected Grants Summary of Melaleuca Refugee Centre)
Source: (Melalueca Refugee Centre's profit and loss statement, 2012)
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Melalueca Refugee Centre receives current loan vehicles from Honda Foundation. Since its establishment in 1992, the Honda Foundation has made donations of over $8.1 million, supporting 40 registered Australian charities each year. The Foundation seeks to contribute to the well being of the Australian community by supporting the work of charitable organizations and community groups across Australia. Melaleuca Refugee Centre in collaboration with Deckchair Cinema is screening Aung San Suu Kyi's film "The Lady"- a Darwin first! This is a step to increase their fund to help the refugees.
The impact of these funding through grants and other sources for Melalueca is each of these organisations plays a significant role, whether assisting with access to hard-to-find housing, navigating the employment market or simply giving a smile from behind a counter. They all make a huge difference to someone feeling overwhelmed by new systems and processes.
CONCLUSION
In a nutshell, financial management is very important or significant because it is related to funds of company. Financial management guides to finance manager to make optimum position of funds. We can protect our business from pre-carious miss-management of money. Suppose, you are small businessman and you took short-term loan and financed fixed assets with this loan. It means, you have to pay loan within one year but fixed assets cannot be sold within one year. In the end of year, you have not enough money to pay this long term debt and this will create risk to your business's existence. You will become insolvent.
In financial management, we deeply study our balance sheet and all sensitive facts should be watched which can endanger our business into loss. For example, a closing balance sheet shows you, you have to pay large amount of debt in next year and you have blocked all the money by purchasing goods or inventory. Financial management teaches you that this is not good outflow of funds which is invested in inventory.
In last, although we a well known business man, the knowledge of financial management in very important. It will help to make sure we are not fall in losses. In this case, financial management help us to choose better sources of finance. Each of these organisations plays a significant role, whether assisting with access to hard-to-find housing, navigating the employment market or simply giving a smile from behind a counter. They all make a huge difference to someone feeling overwhelmed by new systems and processes.
TASK 2
INTRODUCTION
Even if you've been in business for years, financial planning will help you determine who you really want to be, where you really want to go, and what you really want to accomplish in your life. Once you've figured that out, you can incorporate your findings in your business plan so that your professional life will enhance, not undermine, your personal life. Profit and cash flow are two entirely different concepts, each with entirely different results. The concept of profit is somewhat narrow, only looking at income and expenses over an entire accounting period. Cash flow, on the other hand, is more dynamic. It is concerned with the movement of money in and out of a business.
More importantly, it is concerned with the time at which the movement of the money takes place. You must have financial reporting systems in place to accurately forecast your cash flow. You must also develop good financial controls, allowing you to match expense levels to sales revenue. If not, you are likely to experience periods during which you cannot pay your bills. In the extreme, you might get so far behind that you have to close your business and file for bankruptcy. Financial planning is a process of setting objectives, assessing assets and resources, estimating future financial needs, and making plans to achieve monetary goals. Many elements may be involved in financial planning, including investing, asset allocation, and risk management. Tax, retirement, and estate planning are typically included as well.
BODY
Important of financial planning to Melalueca product is it will demonstrate in numbers the organization's commitment to fulfilling its mission. It will be based on reliable income projections and expense projections will be well-researched, conservative, and thorough. Those building the finance will understand what components of it are fixed and which can be adjusted as the finance year progresses. Financial planning is one way to take charge of your economic destiny. Your financial well-being is a reflection of your financial values-your personal beliefs about what you regard as important, worthy, desirable, or acceptable.
Values are reflective of your upbringing and life experiences. These values vary from person to person. You will also want to consider your attitudes toward your financial goals and well-being. What is your state of mind, opinions, and judgment regarding your lifestyle and financial state? Finally, you will want to consider your goals or even dreams. Begin by writing them on index cards. You will need approximately 8-10 index cards to record the information using one dream or goal per card. Make your details specific; include the goal itself, a year for it to be accomplished, and the financial cost.
Moreover, the important of financial planning to Melalueca Centre is to create more confident in their financial situation. According to the study 50 percent of those who have prepared a personal financial plan report feeling on track to meet their financial goals, compared to only 32 percent of non planner. Fifty-two percent of "planners" report feeling very confident about managing money, savings and investments, while only 30 percent of non planners express confidence. Then, planners with less money are more comfortable than wealthier non-planners. Interestingly, planning may be more effective than higher salary in reducing financial stress. Among those in the $50,000-$99,000 income bracket, 50 percent of those who had developed a plan reported that they lived comfortably. This is actually a higher percentage living in comfort than non-planners in the $100,000 plus income group.
The impact of finance on the financial statement is provides an environment for resettlement and healing of refugee survivors of torture and trauma, their families and community through confidential, high-quality and holistic services. Other than that, it also helps Melaleuca Refugee Centre in early settlement support services to 557 people over the last financial year. The Early Settlement Program includes case management services, referral and information, orientation training, housing and health support and social support through our volunteer program.
Apart from that, the impact of finance is it help the company to do early support aims to newly arrived people in the first 12 months of settlement with immediate settlement needs, while strengthening their ability to actively engage and participate in the social, economic and civic fabric of Australia in the longer term. The Early Settlement Program is funded by the Department of Immigration and Citizenship under the Humanitarian Settlement Strategy.
CONCLUSION
Finance is very important for a company. In that manner, financial management will help an organization to maintain their financial inflow and outflow. We can protect our business from pre-carious mis-management of money. Suppose, you are small businessman and you took short-term loan and financed fixed assets with this loan. It means, you have to pay loan within one year but fixed assets cannot be sold within one year. In the end of year, you have not enough money to pay this long term debt and this will create risk to your business's existence. You will become insolvent. This is the simple example of mismanagement of money in your small business, but we do large scale company business, importance of financial management is greater than small business.
Other than that, in financial management, we deeply study our balance sheet and all sensitive facts should be watched which can endanger our business into loss. For example, a closing balance sheet shows you, you have to pay large amount of debt in next year and you have blocked all the money by purchasing goods or inventory. Financial management teaches you that this is not good outflow of funds which is invested in inventory. Blocked inventory never generate earning and your balance sheet's stock value gives you idea that your company is not capable to sell products quickly.
TASK 3
INTRODUCTION
Ratio analysis is an important technique of financial statement analysis. Accounting ratios are useful for understanding the financial position of the company. Different users such as investors, management. bankers and creditors use the ratio to analyze the financial situation of the company for their decision making purpose. Accounting ratios are important for judging the company's efficiency in terms of its operations and management. They help judge how well the company has been able to utilize its assets and earn profits. Accounting ratios can also be used in locating weakness of the company's operations even though its overall performance may be quite good.
Apart from that, management can then pay attention to the weakness and take remedial measures to overcome them. Although accounting ratios are used to analyze the company's past financial performance, they can also be used to establish future trends of its financial performance. As a result, they help formulate the company's future plans. It is essential for a company to know how well it is performing over the years and as compared to the other firms of the similar nature. Besides, it is also important to know how well its different divisions are performing among themselves in different years. Ratio analysis facilitates such comparison.
BODY
Figure 1: Profit and loss statement of Melaleuca Refugee Centre
Sources: Melaleuca Annual report 2011-2012
Figure 2: Balance sheet of Melaleuca Refugee Centre
Sources: Annual Report 2011-2012
Profitability Ratio
2011
2012
Net Surplus Margin
Formula: (Net Surplus/ Margin)
=755,436 $ / 4,375,160 $
= 0.17 : 1
=937,325 $/ 5,090,820 $
= 0.18 : 1
Return on Total Assets
Formula: (Surplus Available to Common Shareholders / Total Assets)
=755,436 $ / 1,542,283 $
= 0.49 : 1
=937,325 $ / 2,572,861 $
= 0.36 : 1
Return on Equity
Formula: ( Surplus Available to Common Shareholders / Equity)
=755,436 $ / 949,745$
= 0.8 : 1
=937,325 $ / 1,887,070 $
= 0.5 : 1
Gross Surplus Margin
Formula: ( Gross surplus/ sales)
=0 / 4.375,160 $
= 0
=0 / 5,090,820 $
= 0
Explanations of Profitability Ratio
Net surplus margin, both the ratio for the years 2011 and 2012 also to 1, which means that if there is 1$ of sales, then there will be 0.17$ surplus and 0.18$ surplus for the two years respectively. There can be seen that the net surplus margin for year 2012 is higher than the year 2012 by 0.01 on the above table. This is because of the difference between the total income for the both years 2011 and 2012. This may due to the funding and donation for the company.
Both the return on total asset ratio for the years 2011 and 2012 also to 1, which means that if there is 1$ of total assets, then there will be 0.49$ and 0.36$ of surplus to common shareholders for the years 2011 and 2012 respectively. The return on assets in year 2011 is higher than the year 2012 due to the total asset in year 2011 is lower than the total assets in year 2012.
Both the return on equity ratio for the years 2011 and 2012 also to 1, which means that if there is 1$ of equity, then there will be 0.8$ and 0.5$ of surplus to common shareholders. The surplus difference between both years is 0.3$ due to the great difference of equity for the both years. Then lastly, there is also 0 for the gross surplus margin due to without of gross surplus for this company. This may say that the gross surplus margin is not applicable for this company.
Liquidity Ratio
2011
2012
Current ratio
Formula: (current asset/current liability)
=1,516,902 $ / 592,638 $
= 2.56 : 1
=2,568,059 $ / 685,791 $
= 3.74 : 1
Quick Ratio
Formula: (Current Assets - Inventories - Prepayment) / (Current Liabilities )
=(1,516,902 $ - 0 -0) / 592,638 $
= 2.56 : 1
=(2,568,059 $ - 0 - 0) / 685, 791 $
= 3.74 : 1
Explanations about Liquidity Ratio
From table above about liquidity ratio, can be seen that there is both the current ratio for the years 2011 and 2012 also to 1, which means that if there is 1$ of current liabilities, then there will be 2.56$ and 3.74$ of current assets for two respective years. It can be show that the current ration of the year 2012 is higher than year 2011. This may caused by the current liabilities of the year 2012 is much higher than the year 2011.
From table as shown on above, we can be seen that there is the same quick ratio with the current ratio for the both years which are 2.56: 1 and 3.74: 1 for the years 2011 and 2012 respectively. This occurred is due to the company is no existing of inventories and prepayment.
TASK 4
INTRODUCTION
