Finance Project 2

This document discusses the potential benefits of treasury centralisation, such as holistic cash management and combating payment abuse. It also explores how a business can minimise problems for subsidiaries arising from treasury centralisation. Additionally, it provides insights into the financial state and performance of a company, including return on capital employed, operating profit margin, current ratio, and more. The document also examines the difference between actual and budgeted costs and revenue, and the reasons behind the difference.

Finance Project 2

Table of Contents
PART A...........................................................................................................................................1
(a) Potential benefits of treasury centralisation ..........................................................................1
(b) How the business proposes to minimise any potential problems for the subsidiaries that
might arise because of treasury centralisation?...........................................................................1
PART B............................................................................................................................................2
Evolute financial state and performance.....................................................................................2
(b) Company consider stick exchange listing.............................................................................4
PART C............................................................................................................................................5
(a) Were actual costs higher than they should have been to procedure and sell 8200 Darcy's?. 5
(b) Was actual revenue satisfactory from the scale of 8200 Darcy's? ........................................5
(c) Reason for the difference in profit between actual profit and budgeted profit?....................5
REFERENCES................................................................................................................................7

PART A
(a) Potential benefits of treasury centralisation
Treasury centralisation is a system of financial management that applied by the most of
the business entities in which financial, cash management, foreign exchange decisions and
controlled by unique team. There are mentioned some benefits of treasury centralisation in
context of BHP that are mentioned below:
1. Holistic cash management: It helps to provide a complete view of bank balances, short
term liquidity requirements and long term cash forecasts. It allows for optimizations of
banking relationships and increase of return on cash by payment factory structure cash
pooling, netting and target balance management.
2. A close eye on payment abuse: Currently, international cybercriminals are increasingly
targeting corporate payment procedure due to cash flows out of business. Through
treasury centralisation aware about cash flow and able to effectively combat fraudsters
and keep close eye on payment abuse. Centralizing outgoing payments factory or an in
house bank and harmonizing all related procedure in order top enhance transparency of
cash flow and take holistic approach for managing the risks.
3. The advantage of centralised treasury system to integrate reporting and accounting area
and achieve all detailed, accurate and up to date information about company cash position
and associate risk. Such elements are helping in preparing strategies to get rid of from
risks and find out various resources of accounts information.
(b) How the business proposes to minimise any potential problems for the subsidiaries that might
arise because of treasury centralisation?
BHP is an Australian registered multinational organisation that conduct their subsidiaries
around 33 nations like Europe, US and may others, These subsidiaries are traditionally allowed a
big amount of autonomy and proposing to centralise of different management operations of
group treasury. As a result it impact on the business in positive and negative manner. There are
arising different problems such as:
Liquidity risk: It is a main risk that faced by the subsidiaries for enough fund and
continue their operational activities by economic cycle and enough funds for strategic
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opportunities. As with this risk treasury must find an effective balance between risk and require
cost for proper management of risk.
Solution: For this require to prepare cash management in which identify short term liquidity risk
and do not approve excessive cash for any activity.
Operational risk: Treasury centralisation is mainly not responsible for the business
procedure like sales, procurement and manufacturing. As a result it becomes reason of operation
risk and covers all procedure like arranging all solid and holistic expertise, policies and
procedures.
Solution: For mitigate this risk require to balance all the procedures of business and cost to find
the most effective solutions for business.
Credit risk: It is mainly focused on treasuries and liable for the counterparties like
banks. When BHP centralised treasury so it impact on subsidiaries and manage the credit risk of
commercial counter parties like customers and vendors.
Solution: For manage this risk by credit insurance and credit default swaps and managed with
strong credit policies and procedure.
PART B
Evolute financial state and performance
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Ratio used Formula and Calculations
Calculation
Results:
Industry
Average
Comments (Max 50
words each)
Return on (long-
term) capital
employed
Operating profit (PBIT): Equity +
long-term debt 29% : 24%
Company return on
capital employed ratio is
higher than of industry
that presents good
performance of business .
Return on equity
Profit attributable to equity
shareholders 31%: 16%
Company provide good
returns on equity as
compare of industry so it
is not good for business
entity.
Operating profit
margin Operating profit : Sales
13.42% :
11%
Operating profit presents
effective position of
business effectively and
the results presents good
position.
Current ratio Current assets: Current liabilities 1.12 : 1.6:1
The current ratio of
business is near to ideal
ratio that present good
liquidity position as
compare of industry.
Acid test
Current assets excluding
inventory: Current liabilities 0.63 : 1.0:1
The company ratio is not
met with ideal ratio but
industry ratio fulfil
requirement positively.
Gearing Debt: Equity 31% : 24%
It present up down of
business and as per the
calculation it is identified
that there is highly
changes face in company.
Dividend cover
Profit attributable to equity
shareholders 3.1 : 4
Company is not providing
higher dividend on equity
share as compare of
industry. There is
identifying lesser
differences.
Interest cover
Profit before interest and tax
(PBIT): Interest 3.78 : 4.5
It is lesser as compare of
industry because they are
not providing good
interest on debenture.
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(b) Company consider stick exchange listing
Listing will allows a business to raise capital in broad market area in regard of their
shares and debentures. Along with expand existing business and set up new business easily.
Moreover, it supports in fund acquisition, provide a exit strategy for founders of business and
also for early stage investors.
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PART C
(a) Were actual costs higher than they should have been to procedure and sell 8200 Darcy's?
Yes actual cost is higher than for manufacturing and selling procedure. When compare
results of actual and budgeted profits so it is getting that organization is not properly utilized
their resources so it impact on the profit. Along with it is increasing total overhead that reduce
profitability. For this require to product manufacture in less cost and proper utilize all the
resources.
(b) Was actual revenue satisfactory from the scale of 8200 Darcy's?
Yes, actual revenue is satisfactory from the scale of 8200 Darcy because after increasing
production unit in actual company generate more profitability. Thus, it presents good position of
business and generate 3200 more profitability in actual as compare of budgeted profit.
(c) Reason for the difference in profit between actual profit and budgeted profit?
The main reason between actual and budgeted profit that in budgeted calculation produce
7500 units and in actual produce 8200 units. In budgeted production cost of material and labour
take is less so it presents less overhead. On the other side in actual unit calculation take higher
cost that impact on the profitability in large manner.
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REFERENCES
Books and Journals
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