Finance for Strategic Managers

Finance for Strategic
Managers

Contents
INTRODUCTION.......................................................................................................................................3
ACTIVITY 1...............................................................................................................................................3
1. Why financial information is needed in business.................................................................................3
2. Business risks related to financial decisions........................................................................................4
3. Summary of the financial information for business decisions..............................................................5
ACTIVITY 2...............................................................................................................................................6
1. Explanation of the purpose, structure and content of published accounts............................................6
2. Interpretation of the financial accounts in these accounts....................................................................7
3. Calculation of financial ratios and how support strategic decision making........................................12
ACTIVITY 3.............................................................................................................................................13
Distinguishes between long and short-term financial requirements for businesses................................13
Comparing the sources of long and short term finance for businesses...................................................15
Examination of cash flow management techniques and an assessment of why the management of cash
flow is so important...............................................................................................................................16
ACTIVITY 4.............................................................................................................................................17
Different ownership structure and compare and contrast of roles & accountability of owners and
managers in making decision.................................................................................................................17
Evaluation of methods for appraising strategic capital or investment projects......................................19
CONCLUSION.........................................................................................................................................20
REFERENCES..........................................................................................................................................21

INTRODUCTION
Finance is major aspects for business managers in attempt to take effective and corrective
actions. There are number of approaches and strategies such as ratio analysis, financial statement
interpretation and many others in attempt to take reasonable decisions. Essentially, the key
aspect that must be recognized by executives is in each form of organization is finance (Bentley,
Omer and Sharp, 2013). The project study is focused on family company that has been
established by a fresh member and needs to acquire crucial financial skills knowledge such that
resources could be employed most effectively. The study is divided into four major activities; the
first one contains detailed information regarding importance of business's financial data; while
second activity focuses on analyzing of company's financial statements. The third one activity is
concerned with analysis of longer- and shorter-term finance for a corporation or business.
In later part of study, appropriate strategies have been applied towards investment projects.
ACTIVITY 1
1. Why financial information is needed in business.
Using different forms of statements like income statements, cash-flows, financial position
etc., and financial information are received. For managers, these financial information are very
critical to take corrective measures. Following, the significance of fiscal information are stated as
follows:
 In attempt to determine the financial performance of businesses, financial information
is advantageous.
 These types of data could be considered as a foundation for taking longer-term decisions, such as
taking large investment opportunities by using accessible threat and returns corporate financial
data (Collins, Pasewark and Riley, 2012).
 Financial information is important as it offers significant information regarding the sustainability
of business accounting and reporting.
 Financial data helps companies make better financial decisions as they highlight the major ROI
(return on investment) components of the company.

 Financial information important for organizations to comprehend the areas where changes are
deemed necessary.
These are therefore several main significance of business's financial information as well as, in
the sense of family business stated above, they need to comprehend this significance in business.
When they are conscious of the significance of business's financial information, effective use
of financial assets and other resources available would be conceivable for them.
2. Business risks related to financial decisions.
Risk is present in any commercial operation, and successful risk management is integral
part of the operation of a sustainable firm. Business management includes varying levels of risk
mitigation. Any risks could be managed explicitly by careful monitoring. In the scenario of
finance feild, there are distinct types of risks that have a massive effect on the functioning of the
present state of businesses. These types of risks are evolving in businesses due to inaccurate
financial choices. Some typical financial risks in business context are described below:
Market risk-: These risk involves a detrimental change in the conditions of the setting
wherein the organisation works. One example of competitive market risk is increasing trend of
clients to purchase online. This component of market risk posed the most serious hurdles to
traditional retail businesses. Firms which have been prepared to make the necessary adjustments
to encourage the online shopping populace have been functioning and seen a significant rise in
revenues, while businesses which have been late to respond or have made lacklustre choices in
their response to evolving market have declined enormously. In the scenario of respective family
firms, this sort of risk may arise if they spend in project and market conditions vary considerably
owing to any global epidemic or natural catastrophe (Council and Britain, 2015).
Credit risk- By increasing customer credits, organisational credit risk could inflict. It can
also refer to credit risk of enterprise itself on its vendors. A business accepts credit risk by
providing its customers the means to buy financing, due to possibility that the customer can fail
to obtain reimbursement. A company must uphold its own loan obligations by ensuring that it
currently has adequate working capital to repay its overdue debts. Alternatively, the suppliers
could either avoid giving loan payments to business enterprise or even completely resist doing

enterprise with the entity. For example, when the respective family firm sells products on
credits to clients as well as their buyers fails to meet payments, they can experience such risk.
3. Summary of the financial information for business decisions.
Financial data serves a critical function in getting it simpler for companies to monitor
all financial outcomes. It is a system wherein the business records and discloses the parts of
financial data which go through and outs of its organisational processes, enabling both
organisational executives and external stakeholders and investors to evaluate the success of the
organisation and make knowledgeable decisions. Financial information serves to make strategic
decisions in the following way:
 It provides investors with a structure for determining and analyzing the fiscal sustainability of
securities offering firms.
 It helps lenders to assess the financial health, viability and credit risk of firms.
 It helps companies to make decisions about how to allocate scarce resources, together with its
related, financial reporting (Fu, Kraft and Zhang, 2012).
In addition to these features, financial information adds to the decision-making of these kinds as:
 Investing decisions- Different investors as well as potential investors employ fiscal information
to construct presumptions on a company's sustainability and financial creditworthiness. It allows
them to establish trade goals to determine not whether market value is fairly priced. Stockholders
do not even have information regarding the historical, current and future fiscal sustainability of
stocks and bonds, but through financial information this is possible to carry out a number of
analyses (Council, 2014).
 Lending decisions – While making lending sum, the lenders simply wants to determine how
much risk is involved which can be generated by evaluating the fiscal information of company.
When this magnitude of threat is determined through financial information, lenders would also
be allowed to evaluate how much it will be lent and with what cost to leverage.

ACTIVITY 2
1. Explanation of the purpose, structure and content of published accounts
In this portion of the project study, the financial statements and other relevant reports of
company Tesco plc have been considered as an illustration.
1. Purpose, structure and content of published accounts
In corporations, three types of accounts/reports are compiled, which are the income
statement, company's balance sheet and the cash flows statement. All these hasva a basic
purpose as well as structure as outlined below in following manner:
 Purpose of compiling income statement: The predominant intent of
framing income statement is to providing stakeholders with details on the
company's profit results and operating results, as well as to offer detailed insights
into company's internal evaluations between various businesses and sectors. The
purpose of a company is to produce profits. Business income statement indicates
whether or not corporation is making a profit. It pays for half of the company's
sales and deducts all its expenditures. What's taken is profit or losses.
Management must understand how their company works and whether it is
sustainable. Managers employ this to assess the gain and cost results
of businesses.
 Purpose of framing a balance sheet-The aim of framing balance sheet is to report
the financial state of the corporation from a specific point in period. Along with
the amounts invested in the business (common stock), the declaration shows
whatever the entity has (equity) or even how much they owes (capital).
When balance sheets are combined together over a number of previous years, this
information is more essential such that trends could be seen in various items
listed.
 Purpose of preparing Cash Flows Statement- The main intention
of preparing Cash Flows Statement is to include information of all cash in-flows,
cash payouts and net monetary variation resulting from the activities, acquisitions
and funding of a company during the year. The cash flow statement employs