Corporate Finance and Management Research

This assignment provides a detailed overview of research papers related to corporate finance. It covers topics like the role of governance in corporate social responsibility, loan pricing, and the information content of managers' vested option holdings. Additionally, it includes studies on managerial ownership, top management conservatism, and patient capital outperformance. The assignment also touches upon integration of finance with marketing and R&D in new product development and supply chain finance for small and medium-sized enterprises.

Finance for Managers

INTRODUCTION
Finance is the most important part of any business organisation as it is a core requirement
of business. It is important for managers to manage the finance available for business. Managing
finance is an essential aspect as managing finance includes recording, summarizing of business
transactions. This report contains the detailed information about the requirements of keeping
financial records it also analyses various techniques which are used while recording financial
information. This report also explains the usefulness of financial statements to various interested
parties, it explains the difference between financial and management accounting and it also
covers the process of budgetary control. This report also states the evaluation of the uses of
various methods of costing used for pricing purposes. This report also contains the calculation of
variance from budget and actual profit and the various investment appraisal methods.
TASK 1
1.1 Requirements and Purpose for financial records keeping
Financial Records: They are the formal documents which represents the transactions
related to business, individual or any other organisation (Baker and Wurgler, 2013). The records
which are maintained by most business organisation includes the statement of cash flow and
retained earning, revenue statement and tax returns. For a successful business it is essential for a
business to keep their financial records in an organised manner. Following are the various
purpose:
 Monitor Business Progress: the main purpose of financial records keeping is to monitor
the progress of its business, it shows a growth of business. These records helps managers
to see that whether their business is growing or not, which items are selling aggressively
in the market. Good records supply a picture which clearly indicates the performance of
its business.
 Prepare Financial Statements: keeping good financial records can help company to
prepare good and accurate financial statements which states the financial health of the
company. These financial positions includes the income statements and statements of
financial positions also known as balance sheet (Bull, 2013). It is essential for any
business to store their records of financial transactions which can help companies to
manage their bank or creditors.
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 Identification of Source of Income: It is essential for business to store its financial
records as one business can generate its revenue from various different sources (Cheng,
Hong and Shue, 2016). These financial records can help companies to keep a track on its
various source through which it can generate the revenue. This information is also needed
to separate business transactions form non business transactions and also to determine the
taxable and non taxable income.
 Keeping Track of Deductible Expenses: The second main purpose of storing the
records of financial transaction is to keep a track on it expenses for filling tax return to
claim the deduction. It is important for a business to record their expenses at time when it
occurs so that it dos not forget the expenses at the time while preparing tax return for its
business.
 Preparation of Tax Return: Financial records are important for companies while
preparing their tax return. As these financial records shows the various sources which are
used by companies to generate its revenue and all the expenses which a company has
incurred in generating revenue.
Above mentioned are the purpose for which it is essential for companies to store its
financial records. As per the Maltese law and regulations following are the requirements for
keeping its financial records:
As per companies Act of Malta law under chapter 386 it is important for companies to
keep its record of accounting in respect to the following:
a) All sums of money which is expended or receive by the company and a matter in a
respect which companies expenditure and receipts takes place.
b) The liabilities and assets of the company
c) if a company deals in the dealing of goods:
.i Statements which states the stock held by a company at end of every accounting
period.
.ii All the statements which states the stock taking from any such statements of stock
which has to be prepared or has been prepared by the company.
1.2 Analysis of financial information recording techniques
In order to record the financial transaction there are various techniques available some of
the techniques of recording financial information are as follows:
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 Manual Recording: It is a techniques which is used by small business owners in which
financial transactions are recorded by using pen and paper. In this type of technique an
accountant records the daily transaction that what has been sold and for what price it is
sold. Now days this types are techniques are not commonly used (Coles, Lemmon and
Meschke, 2012).
 Electronic Recording: Electronic recording is the most commonly used method of
recording financial information. In this type of recording techniques data are recorded by
using electronic means such as computer with the help of various software.
 Day Books: In this type of financial information recording technique data are recorded in
a book which includes data, price, quantity and amount. This could be a book in which all
debit entries are recorded on side and credit entries are recorded on the other.
 Accounts: in this type of technique for recording financial information an account is
prepared which is a record of financial transactions which includes loss, profit, revenue
and sales. Basically this type of accounting method is done for government, banks and
shareholders.
 Petty Cash: Type of financial recording techniques is used in which a some amount of
cash is given on hand for just in case needed for petty things. It is very useful to make
change for various customers and patients.
1.3 Legal and Organisational financial reporting requirements
It is important for a business organisation to record its financial transactions. There are
various legal and organisational requirements which a company needs to follow in a financial
reporting (De Graaf and Stoelhorst, 2013). Following are the various requirements of legal and
organisational for reporting its financial transactions:
 Taxes: The main legal requirement for financial reporting is to calculate the tax liability
which is payable by a company. As per the Companies Act of Maltese Law it is
mandatory for a company to keep a record of its financial statements in order to compute
the total tax payable by that organisation.
 For other companies, Investors, shareholders etc.: It is important for a company to
keep a record of its financial transactions in order to create financial statements and help
investors to make appropriate decision in investing in the business. As per legal
requirements it is necessary for the businesses to prepare the financial statements for its
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stakeholders. Stakeholders includes government, employees, shareholders and all the
parties who have direct interest in the operations of a business (Dezső and Ross, 2012).
 For Internal Decision Making: As per the organisational requirement of keeping
financial reports it is important for a business to maintain a record of its financial
transactions. These financial reports help managers to make effective decision and
identify the problems due to which a company could not perform well in the market. It
also help managers in decision making process as it provides the clear picture of
organisational efficiency to earn revenue.
1.4 Evaluation of the usefulness of financial statements to stakeholders
Financial statements refers to those reports and documents that are developed by the
management department for the company to present the financial information, performance and
position at a point in time. The firm presented this information in context of stakeholder of the
organisation (Christensen and et. al., 2015). Internal and external stakeholders are the two form
of them. Internal stakeholder refers to those who are belong within the organisation like director,
worker, boards of directors etc. Whereas external stakeholders indicates those who are not
directly a part of the organisation like, shareholders, customers, suppliers and others. All the
stakeholders are more conscious to get the information about their investment because financial
statements are beneficial for the business. In context of stakeholders, the usefulness of financial
statements are as following:
 For directors and managers it is important so that they can know about new investment
and project appreciation decision.
 It is useful for shareholders to make comparison in their investments and benefits with
other companies and industries.
 For government, having proper information about financial statements is useful so that
they can gather and collect taxes on due dates from firms.
 For having appropriate knowledge about the price information about the products or
goods and services that are producing by the organisation.
 For employees, financial statements are useful because with the help of it they can secure
the fairness of the salaries and wages they get from the company according to their
income.
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1.5 Explanation of the difference between management and financial accounting
Financial accounting indicates to an accounting system that is obsessed with the
formulation of financial statements for the external function such as capitalist,contributors,
creditors etc. This accounting is based on several different principles, assumptions and
convention as consistency, accuracy and historical cost and others (Cremers and Pareek, 2016).
Management
accounting refers to the accounting for mangers of the organisation which help the management
of the firm in developing and formulating policies, preparing and managing day to day activities
and transaction of the firm. This accounting can be finished according to the necessity of the
management in a specific period of time like weekly, monthly quarterly and others.
Difference between financial and management accounting
Basis Financial Accounting Management accounting
Meaning It is an accounting system
which concentrate on the
designing of financial
statement of a firm that
provide the information about
the financial information of the
company (Damodaran, 2016).
It is an accounting system that
provides necessary and
appropriate information to the
managers of the company for
formulating policies, plans and
strategies for the business of
the firm.
Information It provide monitory
information.
This accounting system offer
monetary and non monetary
information.
Objective The main purpose of this
system is offer financial
information to interested
parties like investors, creditors
etc.
The purpose of it is to assist
the management in decision
making process to offer deep
and detailed information in
about several matters.
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Time frame Financial statements are
equipped at the extremity of
the year usually in a year.
Management reports are
designed as per the
requirements of the company.
1.6 Explanation of the budgetary control process
Budget- It is a tool and technique that utilized by the mangers of the company to make
program and control the use of scarce resources. It refers to a plan that screening the objectives
of the firms that how the management attend to adopt and apply resources to achieve these
objectives.
Budgetary control- It refers to the process of monitoring different actual outcomes with
monetary fund illustration for the organisation for the upcoming time period and standards set
then examining the monetary fund figures with the existent performance for calculating
variances (Fields, 2016). There are various types of budget in business like purchasing budget,
advertising budget, sales monetary fund etc. there are some process for controlling budget are as:
Great coordination and communication between different department of the company can make
control on budget. With the help of it they can make plan and decide effective and efficient ways
for controlling the budget. Budget is important and essential for management because without
budgetary planning, it is hard to run and operate the business of the firm (Hempelmann and
Engelen, 2015). Zero based budgeting and incremental budgeting are some important process of
budgetary control because they help in prediction set overhead costs, computed by adding or
substantiating a planned from the existent reimbursement.
Advantages - It help the management of a company of a commercial enterprise
involvement to demeanor its business operations and actions. It help in creating and generating
suitable conditions for the use of standard costing system in the business of an organisation.
Objective- The major objective of budgetary control is to run and operate different cost
divisions with ratio and economic system
1.7 Evaluation of the use of different costing methods used for pricing purposes
In the business of a company, there are various form of reimbursement but for valuation
purpose business enterprises categorize their costs like direct cost, fixed cost, indirect cost etc.
for pricing motive, there are some essential costs that can be deliberate as marginal cost, price
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taker and others. In an organisation, the management have to find out that which declarer is
cashed for the costs obtained and is compensated an united upon percentage of such costs as
contractors profit is known as cost plus. Apart from this a company compute marginal cost
which assign only variable costs like direct labour, direct material and direct expenses to the
manufacture. This kind of cost express the distinction between variable and fixed cost. In a
organisation, there are various investor and most of them are cost takers according to their
actions like selling and buying stocks and it is not enough to make change the price (Lekkakos
and Serrano, 2016). A firm can be regarded as a price taker when the price sets according to the
quantity of the products. A customer is also considered to be cost taker because the buying does
not impact the price of a company which are sets b y the management for its goods and services.
Another important method is break even and it means that the firm is not gaining profit and not
in loss both are adequate after reconciliation the costs.
TASK 2
Variance analysis: The model which is used by business entities for the purpose of analysing
difference between actual and budgeted figures is known as variance analysis. It helps internal
stakeholders to determine that organisation is performing well or not. It also helps to evaluate the
ability of company to meet its targets that are set by top managers for the business entity. There
are various types of variances that are calculated by managers of enterprises in order to measure
actual performance of organisation. When budgeted figures are more than actual figures then it is
known as a favourable situation and when actual figures are higher than budget ones then it is
known as adverse situation. All of them are as follows:
Material variance: The process in which difference between actual and budget cost of
material is analysed in known as material variance. With the help of it managers can determine
efficiency of organisation.
Labour variance: The tool which helps to analyse difference between actual and
budgeted labour cost is known as labour variance. It guides top executives to measure
effectiveness of employees who are working within the company.
Overhead variance: The variance which is used for the purpose of analysing difference
between budgeted and actual rates of overheads faced by organisation is known as overhead
variance (Gitman, Juchau and Flanagan, 2015). It helps to analyse overspending of money which
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is being made by company as it helps to determine that actual expenses are more than standard
ones or not.
Sales variance: variation between actual and budgeted sales is known as sales variance.
Organisations use it for the purpose of measuring performance of sales functions that are
performed by them. It is also used to analyse results of activities that are executed by business
entity in order to understand market conditions.
PARTICULARS Standard (P.U) Actual variance variance %
sales revenue 62
63.5454545
455 1.5454545455 2%
Direct Labour 22
22.7162790
698 -0.7162790698 -3%
Direct Material 20 21.14545 -1.14545 -6%
Fixed Overheads 6
5.81818181
82 0.1818181818 3%
Profits/ loss 14
13.8655436
575 -0.1344563425 -1%
PARTICULARS Standard Actual variance
sales revenue 62000 69900 7900
Direct Labour 21497.52 24420 -2922
Direct Material 20000 23260 -3260
Fixed Overheads 6600 6400 200
Profits/ loss 13902.48 15820 1917.52
Sales variance
(Budgeted Quantity * Budgeted Price ) - (Actual Quantity *
Actual Price)
labour variances
(Standard Hour * Standard Price) - (Actual hours - Actual
Price)
Material Variance
(Standard Quantity * Standard Price-(Actual Quantity *
Actual Price)
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Overhead variances (Actual Output * SR) - Actual fixed overhead
Sales variance (1000*62)-(1000*63.54) -1540
labour variances (977.27*22)-(1075*22.71) -2922
Material Variance (1000*20)-(1100*21.14545) -3259.995
Overhead variances (1100*6)-6400 200
Standard hours (1075/1100*1000) 977.17
TASK 3
Investment Appraisal: It is an integral part which is used by managers for budgeting the
capital expenditure by calculating attractiveness of a proposed investment with the help of
various methods (Eisdorfer, Giaccotto and White, 2015). Investment appraisal is applicable to
the areas in which result can not be quantified which includes marketing, personnel and training.
Various methods which are taken into consideration in order to calculate investment appraisal
includes net present value, Average rate of return, payback period and internal rate of return.
In the above given case the investment appraisal of the two given project using various
methods are as follows:
Accounting Rate of Return: It is an average net income which is expected from the
assets to earn in a given period of time (Floyd, 2016.). Accounting rate of return is calculated by
using the following formula
Project A Project B
Profit for Year 1 58000 36000
Profit for Year 2 2000 4000
Profit for Year 3 4000 8000
Cost 200000 120000
Estimated Scrap Value 14000 12000
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Average net profit 21334 16000
Initial cost 186000 108000
Accounting rate of return 11.47% 14.81%
Interpretation: From the above calculation it can be observed that project B accounting rate of
return is 14.81% where as in the case of project A it is only 11.47%. As per the ARR method
Project B is the most favourable project for the company.
Payback Period: It refers to the amount of time which an investment will take to recover
the total cost of an investment. From the above given case payback period cannot be calculated
as the return which are generated from both of these projects is in negative.
Net Present Value: Net Present Value is knows as the difference between the present
value of cash outflows and present value of cash inflows over a specific given period of time. It
is calculated by using the following method:
NPV= Cash Flow / (1 + i)^t – Initial investment
where:
i = Required return or discounted rate
t = Number of periods
Project A PV Factor Discounted cash flow
Year 1 58000 0.9090909091 52727.2727272727
Year 2 2000 0.826446281 1652.8925619835
Year 3 4000 0.7513148009 3005.2592036063
57385.4244928625
Cost of initial Investment 200000
NPV -142614.575507138
Project B PV Factor Discounted cash flow
Year 1 36000 0.9090909091 32727.2727272727
Year 2 4000 0.826446281 3305.785123967
Year 3 8000 0.7513148009 6010.5184072126
42043.5762584523
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Cost of initial Investment 120000
NPV -77956.4237415477
Interpretation: From the above calculation it can be interpreted that Project B is the most
favourable than that of project A. in the above given case the Net Present Value which is
calculated from both project is in negative for project A the NPV is -142614.57 where as for the
project B the NPV is -77956.42.
Internal Rate of Return: Internal rate of return is a metric which is used in budgeting
capital in order to estimate the profitability of a potential investment (Hiebl, 2017). It is a
discount of rate which makes the NPV of various cash flow from a particular project to zero.
Project A
Cost -200000 0.9090909091 -181818
Year 1 58000 0.826446281 47934
Year 2 2000 0.7513148009 1503
Year 3 4000 0.6830134554 2732
($1,29,649.61)
IRR -61%
Project 2
Cost -120000 0.9090909091 -109090.909090909
Year 1 36000 0.826446281 29752.0661157025
Year 2 4000 0.7513148009 3005.2592036063
Year 3 8000 0.6830134554 5464.1076429206
($70,869.48)
IRR -48%
Interpretation: From the above calculation it can be stated that Internal Rate of Return for the
project A is -61% and for the project B it is stated at -48% as per the above calculation the most
beneficial project for the company is the project B as its Internal Rate of Return is -48% where as
for the Project A it is at -61%.
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There are many options available with the companies to raise its funds from various
sources such as internal and external sources. Following are the various sources through which a
company can raise finance:
Bank Loan: Company can take loans from banks in order to consider both the project.
Bank loan is a loan given by banks to various organisation on a certain fixed percentage of
interest. It is one of the most common way of raising funds, but the company has to pay back this
loan in a given time and it also incurs the additional expenses of interest.
Corporate Credit Cards: Corporate credit card is a card which can be used by
companies to raise its funds and manage its business expenses. These corporate credit cards are
sufficient for companies who want funds for some small expense and for a short term.
Personal resources: Personal resources a direct way of raising business finance as the
owner bring in their personal savings and resources in to the business to support its business
operations.
Borrowed Capital: Companies can raise its funds from various other borrowed source of
capital such as by raising equity share, debentures and preference shares. Companies raise funds
from these sources by giving ownership in business and authority to have control in the business.
Components of Working Capital
Working capital mainly has three components, following are the components associated with the
management of working capital:
Accounts receivable: It is a revenue which is due and is owed to companies by its
different customers. Companies can improve its accounts receivable by timely and efficiently
collecting the due from its various customers to improve the operation efficiency by providing
surplus amount of cash to carry out its business operations.
Accounts Payable: It is an amount which the company has to pay its creditors, it is an
obligation which company has to pay out to its short term creditors. Company can improve its
efficiency by creating a good business relation with its creditors and paying off its creditors on
time to improve the operational efficiency.
Inventory: It is one of the company's primary assets which is used by companies to
generate its revenue. It is important for the companies to increase the efficiency to convert its
business stock in to revenue efficiently to achieve its organisational goal.
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CONCLUSION
From the above file it can be concluded that finance is an important part of any business
organisation and is considered as a key factor for business. The above file also states the various
requirements and the purpose for which company needs to keep record of its financial
transactions and it also focuses on the various techniques which are used to record the financial
transactions, this report also explains the legal and organisational requirement of financial
reporting. It also contains the evaluation of various costing methods used fro purpose of pricing.
This report contains the detailed calculation of the variance between standard costing and actual
costing. It also contains the evaluation of two projects and calculation of various investment
appraisal methods used by companies to check the returns which can be generated by investing
in those investments
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