Analyzing Customer Account Financial Potential and Performance

The assignment content discusses the financial performance and customer value of VIVA, a company that has experienced a decline in its credit risk and financial performance. The report highlights the importance of measuring customer value and mitigating financial and business risks to make informed decisions for future operations. It emphasizes the need to prepare contingency plans, consult with stakeholders, and communicate effectively with customers to mitigate potential risks and improve financial literacy.

ANALYSING THE FINANCIAL POTENTIAL AND
PERFORMANCE OF CUSTOMER ACCOUNTS

Analysing The Financial Potential And Performance Of Customer Accounts 2
Table of Contents
Introduction:....................................................................................................................................3
Task 1: Preparation of training workbook for the members of sales team......................................3
Estimation of the lifetime value of cash flow which is to be generated if average level of loyalty
maintained by the customer:............................................................................................................3
1.2 Calculation of sales volume which is required for achieving target profitability:....................4
1.3 Measuring the potential variable costs those are responsible for affecting profitability:..........4
2.1 Evaluation of fixed overhead costs along with administrative support:....................................5
2.2 Measuring customer performance:............................................................................................5
Task 2: Preparation of a report on financial analysis......................................................................6
3.1 Evaluation of the financial and business risks attached with customers:..................................7
3.2 Estimation of the value attached with each account:.................................................................7
3.3 Reviewing the financial performance:.......................................................................................8
3.4 Making future business decision:..............................................................................................8
3.5 Preparation of contingency plan:...............................................................................................8
3.6 Consulting and communicating with stakeholders:...................................................................9
Reference List:...............................................................................................................................10

Analysing The Financial Potential And Performance Of Customer Accounts 2
Introduction:
There are a number of financial tools or metrics used to assess and evaluate financial status and
performance of a company. Customers are the most important factor for every company
irrespective of its size and business strategies. One of the most important intangible assets of a
company is its customer base and it is very important to measure the value of those customers.
For the purpose of the current study the concept of customer value, customers equity, CRM and
customer profitability is been considered. Financial ratio naming activity ratio which includes
debtor turnover ratio, collection period and debtor’s day ratio are some financial tools those are
used to determine the performance of customers (debtors) and their respective accounts with the
company (Eisingerich, Auh & Merlo, 2014).
Task 1: Preparation of training workbook for the members of sales team
Estimation of the lifetime value of cash flow which is to be generated if average level of
loyalty maintained by the customer:
For assessing customer accounts of a company the most common financial tool required to be
used are ratio analysis of debtor turnover, collection period and debtors days. Debtor’s turnover
ratio is a type of activity ratio which is used to measure the efficiency of a company in using its
assets. Debtors of a business organisation are the customers of the organisation and turnover of
debtors depends on the tendency of debtors or customers to pay off their financial debts towards
the company. Lifetime value of cash flow is depends on the loyalty of customers. Loyalty of
customers measured from their tendency to meet their financial liability towards the company.
Ratio of debtor’s day is a financial tool which is used to measure the promptness of debtors to
pay off their debts to the company (Delen, Kuzey & Uyar, 2013). As much long time taken by a
company to recover or collect its receivable from customers, that much higher the number of
debtor days the company faces. Debtors or customers days are also called as debtor’s collection
period. Potential value of customers could be assessed and evaluated by the number of debtors
days and duration of collection period from each debtors or customers. The less number of days

Analysing The Financial Potential And Performance Of Customer Accounts 2
customers use to hold their payable to the company are treated as the most valuable customers of
the company. Customers of a company influence the profitability of a company. Customer
Lifetime Value (CLV) is the expectation of net profit that might be attributed to the relationship
of the organisation with its customers. CLV is based on the net present value attached with the
expected future cash flow generated from customer relationship (DeYoung et al. 2015).
1.2 Calculation of sales volume which is required for achieving target profitability:
The volume of sales is required to be calculated by an organisation to achieve its target level of
profitability. Sales volume depends on target profit, CLV and different type of business or
production costs. Target profitability is the predetermined level of profit which is use to meet or
reach by an organisation annually, monthly or quarterly. Fixed costs are those type of costs
which remains the same whatever the volume of production. An organisation is use to bear these
type of costs during its idle time or when the organisation is out of production. Examples of fixed
costs are rent, rates, insurance, salaries and more. On the other hand variable costs use to vary in
accordance with the production volume. Examples of variable costs are wages, costs of raw
material, sales commission, labor charges, bank charges and more (Di Benedetto & Kim, 2016).
1.3 Measuring the potential variable costs those are responsible for affecting profitability:
Profitability of an organisation is influenced by variable costs due to this reason before fixing up
a target profitability the potential costs which are variable in nature are required to be assessed.
For measuring profitability of a company, gross profit is important to calculate because the
amount of net profit is calculated after calculating the gross profit. Variable costs are those type
of expenses which use to increase or decrease as per the increment or decrement of production
volume. It stands as constant amount attached with each unit produced or manufactured by the
company (Eisingerich, Auh & Merlo, 2014). Potential amount which is required to be incurred
by the organisation is needed to be measured properly to eliminate contingencies those are often
arises during production process.

Analysing The Financial Potential And Performance Of Customer Accounts 2
2.1 Evaluation of fixed overhead costs along with administrative support:
Overhead costs which are of fixed in nature such as salaries, rent, insurance, office expenses,
depreciation and costs of amortisation. Fixed overhead costs are the series of costs which does
not varies with the extent of business activities or result formed after changing the activity. These
type of costs are required to be incurred by a business organisation to operate regular business
activities. Measuring and evaluating fixed overhead are required to be done carefully by the
management of the organisation as these costs usually holds a lump sum amount of money. Due
to this fixed variable costs impacts profitability of an organisation. Management of an
organisation needs to create a plan for generating a suitable amount termed as contribution
margin on the goods and services they use to sale to set up the costs of fixed overhead. Every
organisation primarily targets to offset its fixed overhead costs from the volume of sales to
operate its regular business activity (Lindenau et al. 2016). After meeting the fixed overhead costs
organisation can move to generate profit. These types of costs almost stand still from the
beginning till the end of the production process and the amount of these costs are easy to assume
or predict. These costs are not varying from the budgeted figures. Administrative cost is a part of
operating costs those are incurred by an organisation but are not directly associated with
production, manufacturing or sales. Examples of administrative costs are general service costs
and salary of the senior executive. Fixed overhead costs as well as administrative costs are use to
influence the profitability of the organisation as these costs are needed to be incurred by the
organisation irrespective of the sale volume.
2.2 Measuring customer performance:
For measuring the performance of customers some indicators are used those are called Customer
Performance Indicators those are non-monetary or monetary in nature. These indicators are
- Customer value
- Customer loyalty
- Customer satisfaction
- Customer retention
- Customer equity
- Customer turnover, margin and profit

Analysing The Financial Potential And Performance Of Customer Accounts 2
Performance of customers can be measured by CPMS (Customer Performance Measurement
System) which is used for analysing, evaluating, controlling and communicating strategies used
by a customer and their performance. It is a system of CRM (Customer Relationship
Management) which are based on three different types of CRM such as strategic, analytical and
operational. Performance of customers are important to measure because onto this volume of
sales depends as well as profitability of the organisation also depends. After applying the above
mentioned CPIs and CRMs performance of the customers can be measured.
Figure 1: Measurement of Customer Performance
(Source: diuf.unifr.ch, 2017)
Task 2: Preparation of a report on financial analysis
For the current context of the study VIVA, a Kuwait Telecommunication Company is been
selected. Four different customers having different age is been chosen. These customers includes

Analysing The Financial Potential And Performance Of Customer Accounts 2
new customer, less than one year old customer, customer having more than one year but less than
two year and more than three years customer (Wu, Chen & Olson, 2014).
3.1 Evaluation of the financial and business risks attached with customers:
VIVA has represented three kinds of risks such as credit risk, market risk and liquidity risk those
are arises from its financial instruments. Market risk is a business risk which is directly
associated with customers and to stay in the market for long term VIVA needs to mitigate this
risk. Market risk occurred due to the changes in the market prices like rate of foreign exchange,
price of equity shares and rate of business profit. All these rates use to affect the income of the
company. The risks associated with the rate of profit are attached with the customers as volume
of profit depends on the behaviour and loyalty of customers towards the company. Liquidity risk
and credit risk as exposed by VIVA in its annual report of 2016 are the two most influential
financial risks. Credit risk associated with company’s financial loss when its customer fails to
fulfill their contractual obligations arises after purchasing products or services from VIVA. Due
to this, most of the part of financial loss arises from the amount of receivables of the company
from its existing customers and the balance amount of loss arises with the banks. Credit risk of
VIVA has been decreased in 2016 financial year than 2015 by KD 1859000. Customers having
age of more than one year are constituted the credit risks attached with receivable from
customers (viva.com.kw, 2017).
3.2 Estimation of the value attached with each account:
Customer having age of more than three years is the most valuable customer as the level of
loyalty is the highest and value of the new customer is still on deciding stage. As the new
customers does not constructed their loyalty towards the company. Customers having age of one
year and more than one year but less than two year are much valuable than the new customer
because the organisation has already made its impact on these two type of customers. Due to this
reason these two types of customers having their loyalty towards the company to a certain extent.

Analysing The Financial Potential And Performance Of Customer Accounts 2
3.3 Reviewing the financial performance:
For the year 2016, total assets of VIVA has been increased by KD 4293000, whereas total
liabilities of the company has been decreased by KD 35515000 than 2015 which is a good sign
for the financial health of VIVA. But operating profit margin of VIVA stands at 16% in 2016
which is decreased by 2% than the previous year. Operating profit, net profit and EPS (Earnings
Per Share) of VIVA has been decreased in 2016 than 2015 by KD 5268000, KD 3151 and KD
6000. Total equity of the company has been increased by a huge margin which represents that
due to the decreased financial performance of the company banks and other financial institutions
are not willing to allow loans to VIVA and for this reason the company has used equity
investment to meet capital requirements. After reviewing the financial statement of VIVA for the
year 2016, it is very often to include that the company is not performing well and the trend of its
financial performance showing a degrowth viva.com.kw, 2017).
3.4 Making future business decision:
Before making decisions for operating business in coming future VIVA needs to measure its
customer value and mitigate financial and business risks. For mitigating or reducing these risks
to prepare an effective decision VIVA needs to incur some financial costs which will responsible
for influencing profitability of the company.
3.5 Preparation of contingency plan:
Contingency plan is designed for taking the most possible future circumstances or events in
accounts those could put a negative impact on the profitability of the company. For preparing a
contingency plan the planner needs to identify the issues or risk events, responses from the
participants those are responsible for creating those risks. The managers and shareholders of
VIVA have the stake and interest on the financial literacy or viability of it. Before making
contingency plan responses from the respective stakeholders are required to be gathered on the
identified issues according to which contingency plan is been formulated.

Analysing The Financial Potential And Performance Of Customer Accounts 2
3.6 Consulting and communicating with stakeholders:
Consulting and communicating with different stakeholders such as customers, shareholders,
government, suppliers and distributors of the company is very important. This is required for the
improving the regular business operation and this is helpful for mitigating risks by developing
the business process. Proper communication with the stakeholders is required to obtain
information about the things customers use to get from the company, about the interest of the
other stakeholders attached with the company and more. For running business activities
smoothly, mitigating unpredicted risks associated with customer choice, loyalty and preferences
proper consultation and communication is needed to be implemented by VIVA viva.com.kw,
2017). As customers having different age group, their expectations from the company is also
differentiates and to know about their choice representative of VIVA needs to communicate with
these customers.

Analysing The Financial Potential And Performance Of Customer Accounts 2
Reference List:
(JOURNAL)
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DeYoung, R., Gron, A., Torna, G., & Winton, A. (2015). Risk overhang and loan portfolio decisions:
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satisfaction and sales performance. Journal of Service Research, 17(1), 40-53.
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(WEBSITE)
Department of Informetics. (2017), Customer Performance Measurement. [Retrieved from:
https://diuf.unifr.ch/main/is/performance_measurement Accessed on 15 December 2017].
VIVA (2017), Annual Report of VIVA 2016. [Retrieved from: https://www.viva.com.kw/viva-
publish-1.0/pdf/Annual_Report_2016_ENG.pdf Accessed on 15 December 2017].

Analysing The Financial Potential And Performance Of Customer Accounts 2