Corporate Social Responsibility and Finance

This assignment explores the complex interplay between corporate social responsibility (CSR) and financial performance. It delves into various dimensions of CSR, examining their impact on a company's financial well-being. The assignment also discusses the importance of strategic financial management, asset-liability management, and profitability analysis in understanding the overall financial health of organizations. It utilizes theoretical frameworks and research findings to shed light on this crucial relationship between ethical business practices and financial success.

Strategic Financial
Management

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
a) Appraisal of the Project...........................................................................................................3
b) Analysis and evaluation of investment appraisal techniques..................................................7
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13
2

INTRODUCTION
Strategic financial management is referred to as study of finance that possess long term
view that takes into account strategic goals of the business. In the present era financial
management is regarded as strategic financial management in order to enhance its importance for
the business (Sofat and Hiro, 2015). In the present report strategic financial management has
been discussed in context of Hunter and Pride Co. The firm is involved in manufacturing leather
goods that includes footwear as well as clothing. The present study entails to understand
appraisal of the project by the means of calculating net present value, payback period as well as
internal rate of return.
a) Appraisal of the Project
i) Calculation of net present value, pay back period as well as internal rate of return
The calculation of investment appraisal techniques have been enumerated in the manner
below:
Net present value
Year
Sales
(in
units)
Selling price
per unit (£)
Sales/
Revenu
e (£)
Varia
ble
cost
(£)
Annu
al
salary
(£)
Annua
l rent
(£)
Depr
eciati
on (£)
Total
expens
es (£)
Profit
before
tax (£)
Tax
(£)
Profit
after
tax (£)
0
1
6000.
00 65.00
390000.
00
19500
0.00
35000
.00
50000.
00
90000
.00
370000
.00
20000.0
0
600
0.00
14000.
00
2
10000
.00 68.25
682500.
00
34125
0.00
35700
.00
50000.
00
90000
.00
516950
.00
165550.
00
496
65.0
0
11588
5.00
3
10000
.00 71.66
716625.
00
35831
2.50
36414
.00
50000.
00
90000
.00
534726
.50
181898.
50
545
69.5
5
12732
8.95
4
12000
.00 75.25
902947.
50
45147
3.75
37142
.28
50000.
00
90000
.00
628616
.03
274331.
47
822
99.4
4
19203
2.03
5
12000
.00 79.01
948094.
88
47404
7.44
37885
.13
50000.
00
90000
.00
651932
.56
296162.
31
888
48.6
9
20731
3.62
Year Profit after Tax allowances Depreciatio Taxation Cash flow Discount Present
3

tax (£) (£) n (£) (£) (£) rate 12% value (£)
0 -585000
1 14000 100000 90000.00 6000.00 210000 0.893 187530.00
2 115885 90000 90000.00 43665.00 339550 0.797 270621.35
3 127328.95 77750 90000.00 4904.55 299983.5 0.712 213588.25
4 192032.029 70000 90000.00 27729.89 379761.92 0.635 241148.82
5
207313.618
33 112250 90000.00 6549.25
416112.87
09 0.567 235936.00
Resid
ual
value 50000 0.567 28350.00
Total
presen
t
value
£1177174.4
2
(Less)
:
Initial
invest
ment £585000
Net
prese
nt
value
£592174.41
90003
Depreciation
Value £500000
Residual value £50000
Life of machinery 5
Depreciation £90000
Interpretation: From the above calculation of Net present value it has been examined that the
Net present value of the new project that relates with expansion of the catalogue is positive. This
is £592174.41. In case of net present value the decision is made by the firm regarding selection
when the value of net present value is higher and positive. Here in the present case scenario, the
value of net present value is positive. Thus Hunter and Pride Co. can take decision regarding
selection of the new proposal that relates with expansion of catalogue by adding new range of
leather briefcases. This is because such can be beneficial for the company as it would yield
maximum amount of profitability in long run course of time.
4

Pay back period
Year Cash flow (£) Cumulative cash flow (£)
0 -585000 -585000
1 210000 -375000
2 339550 549550
3 299983.5 639533.5
4 379761.92 679745.42
5 416112.8709 795874.7909
Residual value 50000 466112.8709
Pay back period 2.1044028862
Interpretation: The above table presents that calculation of another capital budgeting technique
that relates with determination of pay back period. From the above computation of pay back
period it has been examined that Net present value it has been examined that Hunter and Pride
Co. would recover the amount of initial investment after 2.10 years. In case of pay back period
the decision is made by the firm regarding selection of the project that recovers the initial
investment amount within shorter time span. Thus Hunter and Pride Co. can take decision
regarding selection of the new proposal which is related with expansion of catalogue by adding
new range of leather briefcases. This is because such can be beneficial for the company as it
would recover the amount of funds spent initially within shorter time period. This implies that
would be profitable to the business to a greater extent.
Internal rate of return
Year Cash flow (£)
0 -585000
1 210000
2 339550
3 299983.5
4 379761.92
5 416112.8709
Residual value 50000
IRR 42.70%
Interpretation: The above table presents that calculation of another investment appraisal
technique that relates with determination of internal rate of return. From the above computation
of internal rate of return it has been gained that Hunter and Pride Co. would attain profitability of
5

42.70%. In case of internal rate return the decision is made by the firm regarding selection of the
project that possess higher percentage of profitability. Thus Hunter and Pride Co. can take
decision regarding selection of the new proposal which is related with expansion of catalogue by
adding new range of leather briefcases. This is because such can be beneficial for the company
as it would assist business in gaining high amount of profitability. This presents that firm new
production line would be beneficial to the company to a greater extent.
ii) Analyzing other factors Hunter and Pride Co. should consider before coming to a decision
The Hunter and co. use the following factors while taking any financial decision. Some of
the factors which are considered for analyze the financial decision by company are as follows: Financing Requirements: The requirement for finance for each investor place on entrant.
The requirement of finance from the different sources meet the credibility of a firm
(Herman, 2011). Hunter and pride co. identify the finance requirement which involves
the financial ratios, debt-equity ratio. The financing requirements shows the sources of
finance where the company can get the financial resources. This factor must be
considered by hunter and pride co. before taking the financial decision. Risk factor: With the every investment proposal, there is some kind of risk involved with
the proposal. The company must try to calculate the risk involved in the investment
proposal (Singh, 2014). The risk factor affect the financial decisions in a very crucial
role. Hunter and pride co. for the allocation of capital for investment purpose must
calculate the risk factor involved in the investment proposal and try to bring the
investment proposal with the moderate degree of risk. Cost: The cost factor play an major role in finance while taking any financial decision by
company. The cost of raising the finance from the different sources is different and
finance manager always prefer the source of finance for the investment with a minimum
cost. Hunter and pride co. must considers the source of finance for raising the funds for
investment approach considered with a minimum cost (Liu, 2010). The company
manufacture the leather goods including the footwear and clothing. So the source of
finance for raising the funds should operate with a minimum cost for the investment
purpose.
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 Cash flow position: The cash flow position of a company depends on its profits and
earnings capacity. The cash flow means outflow of cash. Company can declare the
dividend only when they have surplus cash in their company. In the situation, where there
is shortage of cash, company declare the low dividend or no dividend. In keeping the
mind the cash flow position of company (Keller, Parameswaran and Jacob, 2011). Hunter
and pride co. can declare the dividend only when they have surplus cash. Hunter and
pride co. expand their business by investing in new range of production of its company.
So, before taking any financial decision, the company must keep in mind this factor to
attain the profitability of company. Taxation of policy: The taxation policy of government also have a impact on the
profitability of a company. The changes in the taxation policy of the government affect
the financing decision of a firm. The prediction of increase or decrease in the taxation of
policy change the financial decision of a company to some extent. Hunter and pride co.
Considered this factor before taking the decision (Brigham and Houston, 2011). In case,
if the tax rate is higher hunter and pride co. will have pay tax less in the form of dividend.
On the other hand, if the tax rate is less, then hunter and pride co. will pay higher
dividend.
 Human resources: The human asset are the important part of every organization. The
organization investing in new investment proposal should see that their employees are
capable of completing the task or work for their organization. The organization trained
their employees with the technical skills and management skills to deal with to
understand the work for the organization (Freeman, 2010). If the employees are not
capable to work in proper manner and if they have lack of knowledge about work, then
the financial objectives cannot be achieved and therefore, the company considered this
factor foremost while taking the financial decision.
b) Analysis and evaluation of investment appraisal techniques
i) Evaluation of investment appraisal techniques
As per the case scenario Hunter and Pride Co. is a manufacturer of leather goods that
includes footwear and clothing. The company is deciding to take decision regarding whether it
can expand their catalogue through addition of new range of leather briefcases. This requires the
7

company to take appropriate decision which can be made through determination of the outcomes
that have been attained through capital budgeting technique. In order to make decision regarding
selection of suitable investment proposal the role of capital budgeting technique is of greater
importance (Yihao, Wei and Yingying, 2012). This is because it assist the organization in
gaining insight to the feasibility of the proposal for long run course of time. There is presence of
different technique of investment appraisal. This includes net present value, pay back period as
well as internal rate of return.
Net present value
It is one of the significant capital budgeting technique that can used in making evaluation
of capital projects. The NPV calculation acts as an aid in making determination of the present
value of the projected project for future course of time. It has been examined that the project that
possess higher and positive net present value needs to be selected by the organization (Swayne,
Duncan and Ginter, 2012). However it is important for the organization to reject the proposal
that has negative and lower net present value. This is because it might not result in yielding
higher rate of profitability to the business in future course of time. There are several advantage
and disadvantages of Net present value method. Such has been presented in the manner as under: Merits: The technique of net present value is important as takes into account time value
of money. In addition to this another major benefit of net present value is that in this both
after cash flow and before cash flow for specified time duration is taken into account. The
method of NPV gives major importance to the factor that is profitability and risk related
with the project (Advantages and disadvantages of Net present value, 2016). Through this
an insight can be drawn regarding whether the project would yield return in future course
of time or not. There is greater role of net present value technique in maximizing the
organizational value. Demerits: In contrast to this there are certain disadvantages attached with Net present
value technique. This is terms that it is difficult to use. Further the technique of NPV does
not results in providing accurate decision. This is specifically in situation when the
amount of investment of mutually exclusive project are not similar (Barclay, Fu and
Smith, 2010). Further there is greater difficulty faced in making determination of
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appropriate rate of discount. A major demerit to this technique is that it may not offer
appropriate decisions when the project possess unequal life.
Pay back period
It is another capital budgeting technique that is referred to as the period of time that is
needed to cover up the funds which are being invested initially. It is also referred to as the length
of time that is needed to recover the cost of initial investment (Oikonomou, Brooks and Pavelin,
2012). Pay back period is considered as an essential determinant that act as an aid in determining
whether the project needs to be undertaken or not. The firm like Hunter and Pride Co. needs to
make selection of the project that possess shorter pay back period. This is because with
implementation of particular proposal company would be able to recover amount of initial
investment within minimum time span. In contrast to this the firm is required to reject the
investment proposal that has shorter pay back period. This is due to the reason that this project
might not be profitable for the company in future course of time. Merits: There are certain advantage for the business that makes use of technique such as
pay back period. This technique is the simplest one and it can be calculated with greater
ease. Another major merit of this technique is that it is universally accepted and can be
easily understood (Advantages of pay back method, 2016). Further this technique offers
greater significance to the liquidity in order to make decision regarding the investment
proposal. In addition to this the technique effectively takes into account risk. Demerits: On contrary the major demerit of pay back period is that in this time value of
money is not taken into consideration. In addition to this, the technique gives greater
importance to liquidity rather than profitability that can be attained through new
investment project (Manohar, 2014). It has been examined that only cash flow before pay
back period is taken into consideration but it does not account the cash flow after pay
back period.
Internal rate of return
9

Internal rate of return can be defined as the method through which profitability of
potential investment can be measured. Here, that investment is selected whose profitability is
higher while those are rejected which does not have high profits. For instance, if IRR falls under
the required rate or return, the project will be rejected.
Merits
 Time value of money- It states that the it helps in evaluating the project that is lacking in
ARR.
 Simplicity- Such method is very simple in order to interprate the calculation of IRR. Required rate of return is a rough estimate- It is essential for business to identify the
rough estimate so that required rate can be earned.
Demerits: Economies of scale- IRR has major lack that it ignores the actual value of money. Mutually exclusive projects- There are certain investors that come across mutually
exclusive projects that mean if one is accepted other cannot be accepted.
ii) Critical evaluation of capital investment appraisal technique to reflects its strength and
weakness
Accounting rate of return:
The accounting rate of return can also be defines as average of return. The accounting
rate of return is a amount of profit made on return which a individual expect on the investment
made (Barnett and Salomon, 2012). The accounting rate of return is calculated by dividing the
net operating earnings of firm by its initial investment. The accounting rate of return shows the
net operating earnings of an investment create by an investment proposal rather than concentrate
on cash flow to assess the investment proposal (Salerno, 2014). The formula of calculating the
accounting rate of return-
Accounting rate of return = net operating earnings/ initial investment
For Example -
For instance, the Vera company wants to replace the existing machinery with a new one.
The old machinery sold to the small business for Rs. 10000. The new machinery increase the
annual revenue by Rs. 150000 and net operating expenses by Rs. 60000. The cost of new
machinery is Rs. 360000 and the useful life is 12 years and there is no salvage value.
10

Solution: Net operating cost = Incremental revenues – incremental expenses [depreciation]
= 150000- [ 60000+30000(depreciation) ]
= Rs. 60000
Accounting rate of return = 60000 / 350000
= 17.14%
Interpretation:
Using the accounting rate of return technique, the vera company should purchase the
machinery whose accounting rate of return is 17.14% for the investment purpose.
Strength of accounting rate of return: Easy to calculate: The accounting rate of return method is easy to calculate. The method
shows the net operating incomes rather focus on cash flow position of investment
proposal (Shukla, 2014). Investment evaluation: The manager can easily see whether the investment proposal is
favorable for the company evaluation by determining its average rate of return (Hernaus,
Pejic Bach, and Bosilj Vukšic, 2012). Decision-making: The accounting rate of return also considered in taking the financial
decision for firm. The rate of return on the net operating of the company shows whether
the investment proposal should be accepted or not for the investment purpose.
Weakness of accounting rate of return: Profit based: The main drawback of this method is that it is based on profits rather than
cash flow and therefore, this method is affected by the non cash items such as
depreciation (Cinquini and Tenucci, 2010). The change in the methods of depreciation
lead to the higher profits for the company. Time value of money: The another major drawback of the accounting rate of return is that
it does not take the considerations of time value of money. The method is based in terms
of money, but there is no certainty of money will be constant in the future.
 Different outcomes: The accounting rate of return is very wide in many areas of the
accounting and the outcomes of rate of return on every investment proposal is different
(Inoue and Lee, 2011). The calculation of this method is held in many wide varieties
which led to the different outcomes.
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CONCLUSION
It can be concluded from the study that role of capital budgeting technique is crucial in
taking decision regarding whether the new proposal needs to selected by the organization or not.
It has been inferred from the study that from the calculation of net present value, pay back period
as well as internal rate of return it has been gained that the new production line would be
beneficial for the company. As such it would assist Hunter and Pride Co. in attaining huge
amount of profitability in long run course of time. In addition to this it can be concluded that
there are several other factors that needs to considered by organization before finalizing the
decision.
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REFERENCES
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Salerno, T., 2014. Capitalising on the financialisation of agriculture: Cargill’s land investment
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Shukla, A., 2014. A Comparative Analysis of Profitability of SAIL and RINL. Al-Barkaat
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Online
Advantages and disadvantages of Net present value. 2016. [Online]. Available through:
<http://accountlearning.blogspot.in/2011/07/advantages-and-disadvantages-of-net.html>.
[Accessed on 5th March 2016].
Advantages of pay back method. 2016. [Online]. Available through:
<www.boundless.com/finance/textbooks/boundless-finance-textbook/capital-budgeting-11/
the-payback-method-92/advantages-of-the-payback-method-399-4854/>. [Accessed on 5th
March 2016].
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