Assignment on Strategic Financial Management

Added on - 06 Jun 2020

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Strategic Financial Management
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3TASK 1............................................................................................................................................31. Evaluating the risks that can occur from inadequate resources along with the planning toolsfor the same..................................................................................................................................32. Analyzing financial statements of Sainsbury to determine its financial viability...................53. Assessing strategies and tools that can be employed for monitoring both tangible andintangible resources...................................................................................................................124. Explaining the importance of cost in pricing strategies and recommending improvementsfor the exiting costing system....................................................................................................14TASK 2..........................................................................................................................................141. Investment appraisal techniques............................................................................................142. Analyzing viability of expansion plan through investment appraisal techniques.................173. Different types of risk and strategies to minimise risks........................................................20CONCLUSION..............................................................................................................................22REFERENCES..............................................................................................................................24
INTRODUCTIONStrategic financial management is the process that lays high level of emphasis on theattainment of long term organizational goals. In the present era, firms make focus on employingthe tool of strategic financial management which in turn facilitates specific planning pertainingto the usage and management of organizational financial resources. Moreover, strategic planningassists firm in making allocation of monetary resources according to goals and thereby helps ingenerating high return as well as maximizing shareholder’s return. Such field of finance alsohelps in assessing potential investment opportunities that available to business and therebyensures smooth functioning of business operations and functions.For this project, Sainsbury, largest chain of supermarket in UK, has been selected. Itoffers wide range of products or services to the customers at suitable prices. In this, the presentreport will shed light on the tools & techniques that can be undertaken for the purpose ofplanning and allocation of financial resources. Further, report also highlights the extent to whichfinancial position and performance of Sainsbury is good. It also depicts the manner in whichorganization can monitor both tangible and intangible resources. Report will also provide deeperinsight about the way in which capital budgeting tools & techniques aid in decision making.TASK 11. Evaluating the risks that can occur from inadequate resources along with the planning tools forthe sameFinancial decisions that are undertaken by manager have significant impact on bothinternal and external performance of an organization.1. Strategic decision -The strategic decision is taken to formulate future of the business in effective way so thatit may be able to beat competitors in effectual way. This is required so that organisation mayflourish in the best possible way. The strategic decision is taken and is really difficult to ascertainand is affected by internal and external factors and as such, it is basically formulated withobjective of the capital expenditures, plant layout and many more which are examples of
strategic decision taken by organisation (Sofat and Hiro, 2015).2. Basic decision -The basic decisions are required to be taken by organisation which are much vital for it.These are to be taken deliberately by organisation so that it may move ahead of the rivals quiteeffectively. Thus, it involves plant location, channels of distribution and other basic decisionswhich affect organisation's performance in the positive way. These decisions are taken byorganisation so that it may perform well in the market and as such, it may earn profit withimplementation of structured policies.3. Policy decision -Policy decision are taken by upper management or top management of the organisation totake better and effective decisions. It affects entire organisation and as a result, it is able toperform well by implementing well-structured policy decisions. It affects internal and externalfactors as well. The policy decisions are taken which consists of financial structure, policiesrelated to marketing and maintaining effective organisation structure as well (Chandra, 2011).These policy decisions form the basis of effective performance of the organisation and as such,goals are achieved by taking enhanced decisions. The above three key resource decisions are tobe taken effectively by management so that organisation may flourish in the market with muchease.Occurrence of risk from inadequate resourcesIn the case of having inadequate resources Sainsbury plc would not become able to grabprofitable opportunities which will arise in near future. This in turn places direct impacton organizational profitability and overall position.Sainsbury plc will also face difficulty in investing money in R&D activity when thesituation of financial inadequacy exists. Now, innovative offering become key for successwhich in turn assists in gaining competitive edge over others. Thus, if firm does not haveenough resources for research activity then there are no innovative and lack ofcompetitive edge (Hill, 2007).Along with this, financial inadequacy also impacts expansion plan of business to a greatextent. Now, with the motive to widen customer base leading companies like Sainsburymakes more focus on doing business at global level. Hence, in the absence of having
adequate financial resources Sainsbury would not become able to execute plan in relationto expanding operations globally.There are several tools and techniques which can be used for financial planning andallocation of resources:Budgeting: By undertaking budgeting tools and techniques such as incremental, ZBB,ABB etc Sainsbury Plc can make optimum allocation of financial resources in differentbusiness activities. Traditional technique such as ZBB lays high level of emphasis onresource allocation as per the needs or requirement. According to zero base budgeting,every list of item is clearly justified which in turn gives indication regarding optimalfinancial allocation (Hofstede, 2013). Further, budgeting tool also helps in ascertainingthe position of surplus / deficit and helps in finding suitable ways that contributes in goalattainment.Budgetary control: For planning purpose, budgetary control tool is considered as goodwhich also helps in making suitable allocation of financial resources. Hence, by doingcomparison of actual results with standards firm can assess both deviations andassociated causes (Curry, 2013). Thus, by taking into account the outcome or analysis ofbudgetary control business unit can develop competent plan for the upcoming timeperiod.Capital budgeting: By employing capital budgeting tools such as payback, NPV, ARRand IRR Tesco plc can do effectual planning. Moreover, methods of investment appraisalhelp in determining project which prove to be more beneficial for them (Dada, Azim andUllah, 2014). In this way, by selecting suitable project firm can do suitable planning.2. Analyzing financial statements of Sainsbury to determine its financial viabilityRatio analysis may be served as a financial tool that provides high level of assistance insummarizing and evaluating financial statements of the firm. By using such tool firm can assessthe extent to which its performance is improved over the time frame (Benedict and Elliott, 2008).Further, such technique also helps firm in evaluating its position over rival. In this, to ascertainmonetary position of Sainsbury in against to the rival firm Tesco, leading retail chain of UK, hasbeen considered. Hence, such technique is highly significant which in turn assist firm inevaluating its performance and helps in developing competent framework.
Ratio analysis of Sainsbury for the period of 2016 and 2017is as follows:Sainsbury Plc (internalanalysis)Tesco Plc(externalanalysis)ParticularsFormula201620172017Profitability ratiosGross profit145616342902Net profit471377-40Operating income606(SainsburyPlcfinancials,2018))4271017(Tesco Plcfinancials,2018)revenues235062622455917Gross profit margin(Gross profit/sales)*1006.19%6.23%5.19%Net profit margin(Net profit / sales)*1002.00%1.44%-0.07%operating profit margin(Operating profit / sales *100)2.58%1.63%1.82%Liquidity ratiosCurrent assets4444631215417current liabilities6724857319405Inventory96817752301Prepaid expenses107--Current ratio(Current assets / currentliabilities)0.660.740.79
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