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Strategic Decision Making for VIVA's Financial Performance Improvement

   

Added on  2019-09-22

11 Pages2853 Words373 Views
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ANALYSING THE FINANCIAL POTENTIAL ANDPERFORMANCE OF CUSTOMER ACCOUNTS
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Analysing The Financial Potential And Performance Of Customer Accounts 2Table of ContentsIntroduction:....................................................................................................................................3Task 1: Preparation of training workbook for the members of sales team......................................3Estimation of the lifetime value of cash flow which is to be generated if average level of loyalty maintained by the customer:............................................................................................................31.2 Calculation of sales volume which is required for achieving target profitability:....................41.3 Measuring the potential variable costs those are responsible for affecting profitability:..........42.1 Evaluation of fixed overhead costs along with administrative support:....................................52.2 Measuring customer performance:............................................................................................5Task 2: Preparation of a report on financial analysis......................................................................63.1 Evaluation of the financial and business risks attached with customers:..................................73.2 Estimation of the value attached with each account:.................................................................73.3 Reviewing the financial performance:.......................................................................................83.4 Making future business decision:..............................................................................................83.5 Preparation of contingency plan:...............................................................................................83.6 Consulting and communicating with stakeholders:...................................................................9Reference List:...............................................................................................................................10
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Analysing The Financial Potential And Performance Of Customer Accounts 2Introduction: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 teamEstimation 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
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Analysing The Financial Potential And Performance Of Customer Accounts 2customers use to hold their payable to the company are treated as the most valuable customers ofthe 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 fixedcosts 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.
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