Managing Financial Resources

This report discusses the importance of managing financial resources and the effectiveness of financial statements and ratios. It also explores the needs of different stakeholders in financial information.

Managing financial resources
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Table of Contents
Table of Contents.............................................................................................................................2
ASSIGNMENT 1.............................................................................................................................3
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Q1. Examining the various financial statements and financial ratios..........................................3
Q2. Interpreting certain financial ratios of the company.............................................................5
Q3. Analysing the financial information needs of different stakeholder.....................................7
CONCLUSION................................................................................................................................8
ASSIGNMENT 2.............................................................................................................................9
INTRODUCTION...........................................................................................................................9
MAIN BODY..................................................................................................................................9
Q2. Identifying the meaning of cost-plus approach and problem...............................................9
Q3. Identifying the financial ratios of the company..................................................................10
Q.4 Analysing the terms............................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................14
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ASSIGNMENT 1
INTRODUCTION
Managing the resources refers to the regulating and operating the various types of resources in
the company and will lead to satisfaction among the employees and overall management. This
also termed as properly allocation of resources so that it can able to optimize the activities and
functions (Aidemark, 2001). This will going increase the effectiveness and will improve the
efficiency and enhance the production. This could be achieved by the reducing the wastages and
will going to increase the profit for the company. In this report it is being discussing about the
effectiveness of financial statements and different financial ratios and that will be useful for the
shareholder. Apart from that its evaluating the various types of ratios that is being used in the
company and interpret its performance. It is being analysed about the different types of financial
information that will be needed by the shareholder to take the informed decisions.
MAIN BODY
Q1. Examining the various financial statements and financial ratios
Financial statements are financial information that is portrait by the organisation to
evaluate the financial performance of the company at the end of the year. It shows the formal
records of all necessary financial transaction that used to take place in day-to-day operations to
maintain the efficiency. This is useful in taking important decision about the performance of the
organisation and further action that is taken by the top management. This is very important part
to make the financial statements of the company and formulating the profit. Following are types
of financial statements are as follows-
 Income statements- This is financial information that helps in reporting the company’s
financial performance for specific period of time. This essential part of the company that
will is prepared by the accountant to analyse the income and expense during financial
year. This is used by many external users to assess the overall performance of the
organisation. Some of the components are as follows-
Revenue- It concern with the sales of goods and services that company generate or produced
profit during the specific period (Barsky and Marchant, 2000). This differs from the various
activities and involves many efforts to minimize the profit for the company.
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Profit and loss- This is Net income that is obtained by the deducting the expenses and will occur
after the appropriate time. Profit is important part for the company as this indicate efficiency of
the company.
Expenses- This is called as cost of activities and operation that used to occur while
manufacturing or any other operational function. This could be administrative expenses, selling
expenses, promotion and advertising expenses (Beer and et.al, 1984).
 Balance sheet- This called as the statement of financial position as it tells the position of
assets and liabilities at the end of accounting period. This is essential part of financial
statements where it helps the users to make the informed decisions about the financial
position. This is useful in analysing the efficiency and effectiveness in long term and
fulfil all important decision to achieve the goals and objectives of the company.
 Statement of cash flow- This is financial statement that helps in aggregate data
regarding all cash inflows company receives from its ongoing operations and other
external investment sources. This also include all cash outflows its pay for business
activities and different investment during the period and gives an overview to the investor
and shareholder about the company. This will help in knowing the operational efficiency
of the management and help to take the informed decision. There are three different
sections of the cash flow such as Investing activity, operating activity and Financing
activities.
Ratio analysis- There are various pieces that gives financial information from the
financial statements of the business and evaluating the extremal and internal efficiency to
determine the profitability of the company. There are various ratios such as liquidity,
solvency and profitability ratio. This is important to understand the effectiveness of the
company. Some of the ratio are as follows-
 Liquidity ratio- This measure the organisation to meet the obligation using the current
asset and current liability to make the timely payments and measure the short-term
efficiency. It can convert its assets into the cash and from that using the money to settle
any pending debts with more ease. Some of the example are Current ratio, Quick ratio
and cash ratio (Cardon and Stevens, 2004).
 Solvency ratio- This measure the solvency and efficient viability and this compare the
debt level of the company according to the assets and annual earnings. Some of the
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important ratio are debt to capital ratio, debt ratio, interest coverage ratio and equity
multiplier. These are useful for the bankers, government, employee and institutional
investor to evaluate the efficiency of the organisation and will help them to take informed
decision and investment and will help in analysing the investment options to take the
further action in the future.
 Profitability ratio- This measure the business’s ability to earn the profit and relative
associated expenses. If company is having higher profitability ratio it refers to higher
level of profitability and indicate that company is doing well in its business. This ratio is
useful is useful for the external customer about the different perspective and will lead to
take many informed decisions and helps in taking forecasting the company performance
on the basis of current analysis of the company. Some important profitability ratios are
return on equity, return on asset, profit margin, gross margin and return on capital
employed are some of the example (Dolganova and et.al., 2020).
Q2. Interpreting certain financial ratios of the company
Following are the interpretation of financial ratios of the organisation are as follows-
Gross profit-
Year 2020
Gross profit 200000
Net sales 500000
GP Ratio 40
Gross profit refers to measuring the profitability that shows the percentage of gross profit
in the comparison to overall sales. In the organisation, the gross profit is 40% in 2020, that
indicate positive figure in the organisation. Higher the gross margin is much better for the
company as it shows that firm is efficiently manage the expenses and able to cover up the cost
such as Operating, Financing (Gould and Melecky, 2017).
Expenses ratio-
Year 2020
Administration
expenses 101000
Net sales 500000
Expense’s ratio 20.2
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Expense’s ratio refers to the calculation to ascertain the relationship exist between the
operating expenses and volume sales. These are essential to understand the portion of sales
which is consumed by various operating expenses. In the context of Future trading, the expenses
is 20.2% that tells the amount of expenses that has been generated in relative of sales. Lower of
this ratio will be beneficial for the company and indicate the efficiency in operational activities
and function and will be useful in analyse the effectiveness.
Net profit-
Year 2020
Net profit 84000
Net sales 500000
Net profit ratio 16.8
Net profit ratio shows the gross profit minus operating expenses and income tax and also states
the relationship between the net profit and net sales has been expressed in percentage form. In
the context of Future trading, the table shows that Net profit is 16.8%, which tells the satisfactory
position of the company and will enhance the profitability of the operational efficiency. Hence,
the company has good position to generate the sufficient sales to make better result in the
company and will be useful for the other to evaluate the performance.
Operating ratio-
Year 2020
Cost of goods sold 300000
Operating expenses 113000
Net sales 500000
Operating ratio 82.6
Operating ratio indicate the efficiency of the organisation and comparing total operating
expenses of the company to the net sales. The smaller ratio the more effective the business
operation and generating the revenue and expenses. In the context of Future trading, the 85%
which is higher than the ideal ratio and will help the management to take further steps. This
indicate that organisation is facing expenses as compared to the sales that is being collected and
lower the ratio will be better for the company (Pablo and et.al, 2007).
Operating profit ratio-
Year 2020
Sales 500000
Cost of goods sold 300000
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Operating expenses 113000
Operating profit ratio 17.4
Operating profit refers to the profit that is earned by each dollar of sales and will helps in
measuring the operational efficiency. In the company, the ratio is 17.4%, that shows the better
position of the company. This was satisfactory situation of the company and will leads to many
benefits and provides the essential requirement of the organisation. This is also useful for
investor to evaluating the performance and hence indicate the positive sign for the management
function. Therefore, higher the operating profit and performing well in the market.
Inventory turnover ratio-
Year 2020
Cost of goods sold 300000
Average inventory 87375
Inventory turnover
ratio
3.43347
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Inventory turnover ratio refers to the calculating the pricing, manufacturing, marketing and
purchasing decisions. It used to tells the how efficiently company used to generate sales from its
inventory. In the company, ratio is 3.4, that shows the quite lower than the ideal ratio in the
industry. Hence, higher the ratio refers to the selling goods quickly and lower and will be less
demand in the market. So, the company has less ratio that shows the inefficiency in the company
(Pauly, 2009).
Q3. Analysing the financial information needs of different stakeholder
There are different stakeholder that used different financial statements to examine the
performance of the company for their own purpose. Financial statement helps them to take
informed decision and help in making right steps. Following are the stakeholder that used to
prefer different kinds of statements are as follows-
 Board of director- Top management has to assess the overall performance of the
company and need financial report to take the effective decision. They generally prefer to
see the more income statements to identify the profitability.
 Shareholder- They are external investor that used to invest in the company and focus on
maximum return in the form of dividends. They need to focus on financial ratios such as
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operating profit ratio, dividend pay out ratio and analyse the income statements to
determine the net profit of the organisation (Row and Popiel, 1987).
 Banks- These are extremely interested in the company and make sure that company able
to afford the loans and other obligations. The need to take the appropriate steps before
granting them loans and must evaluate the operational efficiency. It generally helps in
evaluating the effectiveness of the organisation for that need to consider the cash flow of
the company and calculate the acid ratio that helps in evaluating the liabilities and their
current assets.
 Customer- They were interested in the company’s continuous into the future as secure
source of supply and sales price increase. They show efforts when company able to
perform well in the market and will need to assess the income statements and balance
sheet of the organisation (Schoonraad, N., 2005).
 Creditors- They are interested in the company to know the liquidity and efficiency of the
organisation so that it can pay regular for its purchase from them and for that they can
keep eye on the cash position of company. They need to analyse financial statements
such as balance sheet and other important statements. They need to understand the
effectiveness and operational profitability and for that it measure average payment period
to payable expressed in days.
 Competitor- They also interested in financial result of the organisation to see whether its
performing better or worse than its own. To analyse cost and expense that helps in
evaluate the balance sheet and cash flow statement.
CONCLUSION
From the above report it is concluded that managing the resources will help in managing
overall efficiently of the organisation and which is more beneficial for the company. This is
important to understand the performance. Apart from that it being determine the different
stakeholder to assess the performance of the firm.
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ASSIGNMENT 2
INTRODUCTION
In this report it is being determine the effectiveness of the organisation and need to
understand the meaning of cost-plus pricing and problems of using this approach in the
company and discussing the importance. Apart from that evaluating some ratios is being
analysed to take effective decision in the company.
MAIN BODY
Q2. Identifying the meaning of cost-plus approach and problem
Cost plus approach also called markup pricing it is like practice by the organisation to determine
the cost of product to the company and then adding some percentage on the top of that price to
evaluate the selling price to the customer. This is simple cost-based pricing strategy to set the
price for certain goods and services. Makeup percentage is added to the total cost to assess the
cost to offer the product and services and helps in finding the accuracy of cost that is being used
in the management. This method is not acceptable for deriving the exact price of product that is
to be sold in the competitive market and it does not factor in the price charged by the
competitors.
Some of the problems are there while using this approach-
 Limiting price segmentation- This basically reduce the ability to price to certain
segments of the market. This also put the limits on the limitation on innovation and that
leads to reduce the creativity and distinct that put into to sell the goods and services
(Snell, Morris and Bohlander, 2015).
 Lacks market orientation- The main problem is that it does not gives market orientation
and that lacks the efficiency and effectiveness in the company. Price is basically set
without targeted the customer to perceive the product as good value at that point of time.
It create the problem in solving the issue of performing well in the market and will leads
to problem.
 Production inconsistency- This also functional problem that understand the cost which
is rarely static and leads to moving target or risk variability in profit margin. However,
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material used in the product may become more expensive or harder to get and will lower
the gross margin of the company effectiveness.
Q3. Identifying the financial ratios of the company
Current ratio-
Current asset 40000
Current liability 28000
Current ratio
1.42857
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Current ratio refers to the classic measure of liquidity and indicate whether the business can pay
its debts within one year out of the current asset. In the context of Fortune trading company,
current ratio is 1.4 is quite good position of the company in terms of paying the short term
payments. Higher ratio is more favourable than lower the current ratio because in terms of
dealing with the debts payments. This could be better way to understand the able to obligation to
maintain the efficiency.
Quick ratio-
Current asset 40000
Inventory 12000
Current liability 28000
Quick ratio 1
Quick ratio concern with the ability of company to pay all of its outstanding liabilities that they
come due with only assets that can be quickly converted to cash. In the context of Fortune
trading, the ratio is 1 which is good sign for the company and will help in formulating the
efficiency in less than 1 year and that gives the idea to many institution to give the loans and
other stuff. This is useful in knowing the effectiveness in the organisation (Willoughby, 2000).
Debt equity ratio-
Total liabilities 60000
Shareholder
equity 60000
Debt equity ratio 1
Debt equity ratio is to evaluate the company’ s financial leverage and shows the risky position of
the company in terms of payment of debts. In the context of Fortune trading, the ratio is 1, which
is satisfactory position for the organisation as this able to pay its short-term debts effectively. It
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indicates that if an organisation is associated with the high risk in terms of debt financing it will
show the higher the ratio than 1. Therefore, they were facing the effectiveness in terms of paying
their debts.
Proprietary ratio-
Shareholder
equity 60000
Total asset 120000
Proprietary ratio 0.5
Proprietary ratio shows the contribution of the shareholder in total’s capital of the company and
such it provides the rough estimate of the capital amount currently used to help the business. In
the context of Fortune trading, the ratio is 0.5 which is comparatively good sign as it heavily
depending on the debts for the operations. Hence, higher ratio tells the stronger position of the
company and indicate the greater security to the security (Zachosova, Herasymenko and
Shevchenko, 2018).
Q.4 Analysing the terms
Financial budget is the budget that allocate the resources at right place so that it could be achieve
the objectives and goals. This integrates the whole departments and its function into right
direction in proper manner. There are three section in financial budget-
 Cash budget- This contain information of inflows and outflow of the company and
preparing the cash flow of the company is dynamic process.
 Budgeted balance sheet- This refers to the many budget and some major type of budget
that has been prepared for the company.
 Capital expenditure budget- This relates to plants and other fixed asset that used in
business operation.
Variance analysis- This is quantitative investigation of the difference between actual and
planned behaviours. This kind of analysis used to maintain the control over the business. For
example if budget for the sale is $12000 and actual sales is $10000, the variance analysis
difference is $2000.
Adverse variance- This kind of budget variance further because its different potentially serve
consequences for the organisation. This could be experiencing because of poor estimation of
future expenditure and expenses. For example, company budgeted $300000 for the production,
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marketing for the business. It include labour, ink and cardstock. So, final amount was $325000.
This refers to the adverse budget variance of $25000.
Favourable variances- Variances should be indicated exactly as favourable when revenue
comes in higher than budgeted or when expenses are lower than expected. The result will be
greater income than original forecasted. This basically occurs when cost to produce something is
less than budgeted cost. For example, if supplies expenses budgeted to $40000 but actual
supplies expenses ends up being $30000, then $10000 variances is favourable because having the
fewer expenses than were budgeted that was good for the position of company. This basically
indicated the positive mark to the business operations and will helps in understanding company
variances (Kut, Pramborg and Smolarski, 2007).
Positive variances- This usually takes happens to relate with the favourable variance and almost
same meaning about the term. This is essential to make the important decision according the
budget when used to form for future circumstances to make important steps in fear future. For
example, if company budget $20000 for an expense and spends $16000 from the budget. The
surplus of $4000 or called as the positive expense’s variances. This is will be beneficial for the
organisation to attain surplus amount so that it could use this amount in other way where it
needed and hence will be useful.
Negative variance- This happens where ‘actual’ is less than ‘planned’ or budgeted and would be
when raw material cost is less then expected, hence sales were sales than predicted and labour
cost were below the budgeted figure. For an example, if budgeted expenses were less than
predicted which is $300000 but the actual cost that will occur is $350000, so the negative
expenses were $50000 or 25%. Hence this create problem for the company in near future to
make anu budget and at the time forecast. So, to reduce that it need to be determine properly to
avoid the negative variance in the business operations.
Direct labour variances- This concern with the difference between the standard cost production
and actual cost in production. There are two types of labour variance also that used function
differently. For an example, the actual hours of direct labour at standard rate equals to $43200,
standard cost of direct labour comes to $48000. To calculate the direct labour variance, subtract
the actual hours of direct labour at standard rate ($43200) from the actual cost of direct labour
($46800) to receive the $3600 unfavourable variance.
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CONCLUSION
From the above report it is concluded that every organisation has to regulate and maintain
their resources effectively to achieve the efficiency in long term operations. This will also going
to increase the overall performance of the company and hence enhance the productivity. It is
being discussed in this report about the cost-plus pricing in the company and its benefits to the
management and also evaluating its problem that used to face while implementing this. Apart
from that discussed certain ratios and their impact in the firm such as Profitability ratio, Solvency
ratio, Efficient ratio and also analyse some terms used in the company.
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REFERENCES
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Willoughby, C., 2000. Singapore's experience in managing motorization and its relevance to
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