This document provides study material and solved assignments on Financial Management. It includes answers to SWOT analysis, solvency ratios, liquidity ratios, profitability ratios, and more.
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Running head: FINANCIAL MANAGEMENT Financial Management Name of the Student: Name of the University: Authors Note:
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1 FINANCIAL MANAGEMENT Contents Answer 2:.........................................................................................................................................2 Answer 3:.........................................................................................................................................3 Solvency ratios:...........................................................................................................................3 Liquidity ratios:...........................................................................................................................5 Profitability ratios:.......................................................................................................................7 Interpretation of ratios:................................................................................................................8 Answer 4:.........................................................................................................................................9 Evaluation of distribution proposal:............................................................................................9 Evaluation of restaurant acquisition:.........................................................................................10 Recommendation along with reasoning:...................................................................................10 Answer 6:.......................................................................................................................................10 References:....................................................................................................................................14
2 FINANCIAL MANAGEMENT Answer 2: SWOT analysis is the concept of analysis the relevant strengths, weaknesses, opportunities and threat to an organization. Strengths and weaknesses are internal to an organization thus, an organization has significant control to enhance its strengths and improve its area of weaknesses. However, opportunities and threats are external and beyond control of the organization but by proper management of an organization these can be used in favour of the organization. In case of Canada Hardware (CHI) the SWOT analysis is provided below. Strengths: I.Huge goodwill and reputation of the company in national market. II.The company has specific knowledge about customers’ preference and choices in regional market. III.Diversification of business by proper acquisition management. IV.Ability to keep the management team of acquired companies intact to use their experience for management of different business segments. V.Ability of develop its own products("An Assessment of Effective Risk Management Strategies on Project Supply Chain in Kwale County – Kenya", 2018). Weaknesses: I.Inability of the company to expand its business beyond the domestic market. II.Inability of the company to attract new customers from millennial and gen Z segment. III.Failure of the company to use modern day marketing and promotional strategy to promote its products and services.
3 FINANCIAL MANAGEMENT Opportunities: I.StrategicopportunitiesavailableinCanadianmarkettooperateinstrategic partnership to improve the ability of the company to generate more revenue. II.Use of aggressive promotional and marketing strategies including social networking sites and other modern day marketing techniques to attract new customers. III.Utilize the huge scope of online and digital marketing platform. Threats: I.Reduction in gross profit of the company. II.High promotional costs may not yield the expected benefits in the future. III.Changing customer preferences to shop using online and digital platform pose a huge threat to the traditional way of shopping by visiting stores(Chu & Chiu, 2013). Mission statement intent: I.Provide customers top quality products and services. II.Maximize the wealth of the shareholders. Mission statement alignment: I.Having more than 100 shops in different corners of Canada to serve its customers properly. II.Investment in online and digital platform to improve the quality of experience of the customers.
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7 FINANCIAL MANAGEMENT 0000000000 Gross profit ratio (A x 100/ B)49. 69 51. 34 51. 42 52. 00 56. 00 Net profit ratio (A) Net profit1,738. 00 1,637. 00 1,156. 00 1,044. 00 704. 00 (B) Sales8,297. 00 8,516. 00 8,996. 00 8,952. 00 8,573. 00 Net profit ratio (A x 100/ B)20. 95 19. 22 12. 85 11. 66 8. 21 Operating ratio (A) Operating expenses1,850. 00 2,200. 00 3,000. 00 3,100. 00 3,900. 00 (B) Sales8,297. 00 8,516. 00 8,996. 00 8,952. 00 8,573. 00 Operating ratio (A x 100/ B)22. 30 25. 83 33. 35 34. 63 45. 49
8 FINANCIAL MANAGEMENT Interpretation of ratios: Solvency ratios: Solvency ratios show the solvency position of an organization. The debt to equity ratio shows the proportion of long term debt of the company to its total equity. As is clear from the debt to equity ratio that the company’s total debt proportion has reduced over the years. Capital gearing ratio shows the proportion of owners’ equity with the total interest bearing funds of an organization. Company’s owners’ equity has continued to increase signifies the improved solvency position of the company over the years. Interest coverage ratio shows the ability of an organization to pay its interest expenses from the net profit of the company. The company’s interest coverage ratio with 18.38 times in 2013 has deteriorated immensely in by the end of 2017 with 8.04 times. Liquidity ratios: Current ratio shows the ability of an organization to pay its current liabilities by using current assets only. Quick ratio on the other hand shows the ability of the company to pay its current liabilities by using its liquid assets such as cash and accounts receivable only. Though current ratio of the company has improved over the last five years as it stood at 2.77 in 2017 however, quick ratio has deteriorated suggesting increase in proportion of inventories in the current assets of the company over the years. Profitability ratios: Profitability ratio shows the profitability of an organization. Gross profit ratio of CHI has increased each year suggesting significant improvement in the ability of the company to use its raw material san labor in business operations. In 2017 the gross margin of the company is 56% compared to 49.69% of 2013. However, both net profit and operating ratio of the company
9 FINANCIAL MANAGEMENT indicate that the ability of the company to generate net income has reduced significantly. Net profit ratio in 2017 is 8.21% merely where as it was as high as 20.95% in 2013. The reason for the lack of profitability of the company is the ever increasing operating expenses which is clearly indicated in the increasing operation ratio of the company(Gerasimov & Novikova, 2016). Answer 4: Evaluation of distribution proposal: The company has a strong acquisition system in place. As a result it has over the years acquired different businesses to diversify its business operations to expand its revenue collection sources. The company currently operating in three segments, namely hardware, apparel and sporting goods. The company has more than 100 stores in all across Canada to sale its products. In fact the company has ensured that each province in Canada shall have a store of the company to sale its products to the customers. In addition the company has decided to experiment with strategic partnership. By partnering NHL the company has sold more sporting jerseys to the customers. Evaluation of restaurant acquisition: Acquisition of restaurant is a proposed idea and if materialized has the potential to increase the ability of the company to generate revenue from business. The shopper who will visit the stores will have a great experience by using the services of attached restaurant. Thus, the proposal of acquisition of restaurant is a great business idea with potential to provide significant return to the company in the future(Karim & Arif‐Uz‐Zaman, 2013).
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10 FINANCIAL MANAGEMENT Recommendation along with reasoning: Thus, at present the company has an effective distribution system in place however, looking at the future of traditional market the company has planned to invest huge amount of fund in digital and online infrastructure. With the future of shopping very much riding on the ability of an organization to make effective use of digital and online platform the proposal to invest on the given distribution proposal is very encouraging for the company and its business prospect in the future. Hence, the company should invest in online and digital shopping platform to stay attract new customers in the future along with keeping the existing customers by improving the experience of traditional shoppers who will be visiting the stores of the company physically("An Assessment of Effective Risk Management Strategies on Project Supply Chain in Kwale County – Kenya", 2018). Answer 6: CCA schedule: Cost of acquisition of the asset270000 Date of acquisition1st January, 2015 Date of disposal31st December, 2017 Rate of depreciation30% Depreciation schedule year201520162017
11 FINANCIAL MANAGEMENT Written down value: Opening WDV270,000.00189,000.00132,300.00 Depreciation for the year81,000.0056,700.0039,690.00 Closing WDV189,000.00132,300.0092,610.00 Terminal loss: Terminal lossSale value $90000Sale value $120000 Sale proceeds90,000.00120,000.00 Less: WDV as on 31.12.201792,610.0092,610.00 Terminal (loss) / gain(2,610.00)27,390.00 Tax savings: Terminal lossSale value $90000 Sale value $120000 Sale proceeds90,000 .00 120,000. 00 Less: WDV as on 31.12.201792,61092,610.
12 FINANCIAL MANAGEMENT .0000 Terminal (loss) / gain(2,610. 00) 27,390. 00 Tax (saving) /expenses(568 .46) 5,965. 54 Average tax rate is 21.78% calculated as below: Year20132014201520162017 Profit before tax2173207215261455801 Tax43543537041197 Total profit before tax8027 Total tax on above1748 Averagerateofincometax(1748x 100/8027) 2 1.78% Terminal loss interpretation: It is the loss caused to an organization from sale of an existing property such as equipment, machinery or other such non-current assets held in the business to generate revenue.
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13 FINANCIAL MANAGEMENT Recaptured CCA: CCA is $2,610 in case the asset is sold at $90,000 in the form of reduction in income tax liability. Tax savings: As shown in the above that in case the asset is sold at $90,000 the company will be able to save a tax of $2,610. Tax rate: Tax rate is 21.78% as calculated by considering the pre-tax profit and tax expense of the company over the last five years.
14 FINANCIAL MANAGEMENT References: An Assessment of Effective Risk Management Strategies on Project Supply Chain in Kwale County – Kenya. (2018).IJARKE Business & Management Journal,1(2), 17-38. doi: 10.32898/ibmj.01/1.2article19 Chu, M., & Chiu, S. (2013). Effective Marketing Strategies to Attract Business Visitors at Trade Shows.InternationalJournalOfBusinessAndManagement,8(24),14.doi: 10.5539/ijbm.v8n24p64 Gerasimov, B., & Novikova, N. (2016). INTRODUCTION OF ACTIONS FOR INCREASE OF EFFECTIVEMANAGEMENTOFINNOVATIVEACTIVITYATTHE ENTERPRISES.Business Strategies,1(1), 3. doi: 10.17747/2311-7184-2016-1-3 Karim, A., & Arif‐Uz‐Zaman, K. (2013). A methodology for effective implementation of lean strategies and its performance evaluation in manufacturing organizations.Business Process Management Journal,19(1), 169-196. doi: 10.1108/14637151311294912