Strategic Management Accounting: A Review

This assignment delves into the realm of strategic management accounting, examining its historical development, core concepts, and practical applications. It critically analyzes various theoretical perspectives on strategic management accounting and explores the challenges and opportunities it presents in contemporary business environments. The assignment encourages a comprehensive understanding of this dynamic field through scholarly research and analysis.

Running Head: Strategic Financial Management
Project Report: Strategic Financial Management
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Contents
Tools and techniques of cost accounting..........................................................................4
Concepts, features and importance of cost accounting.................................................4
Tools of costing design and system..............................................................................5
Recommendation..........................................................................................................6
Analysis of the financial performance..............................................................................8
Financial statement analysis.........................................................................................8
Financial statement evaluation...................................................................................11
Recommendation........................................................................................................15
Budgetary process of organization.................................................................................16
Evaluation of budgetary targets..................................................................................16
Development of master budget...................................................................................17
Evaluation of the budget and its process....................................................................18
Long term and short term sources..................................................................................21
Need for short term working capital and long term funds..........................................21
Appropriate source of short term funds......................................................................21
Choice of sources........................................................................................................22
Investment appraisal.......................................................................................................25
Financial appraisal methods.......................................................................................25
Strategic investment decision.....................................................................................27
Analysis over strategic investment decisions.............................................................30
References.......................................................................................................................32
Appendix.........................................................................................................................35
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Que 1)
Tools and techniques of cost accounting:
1.1)
Concepts, features and importance of cost accounting:
Cost accounting is the concept of accounting which assists the manufacturing
companies to identify the total cost of the company to make various decisions about the
production, sales etc of the company. It helps the company to analyze various new strategies
for the betterment of the company and for managing the entire activities of the company. Cost
accounting is a process of classifying, recording, analyzing, allocating and evaluating various
alternative actions to control and evaluate the total cost of the company1.
The main purpose of cost accounting is to offer information for various decisions
making in a good manner. Cost accounting assist the company to analyze all the information
related to the total cost of the company and it evaluates the information and presents them in
an understandable state so that a better decision could be done2. Cost accounting uses the
internal as well as external sources to manage and maintain the business in a proper manner.
Cost accounting evaluates the internal operations and the activities of the company in order to
enhance the overall performance and the business management of the company.
Cost accounting is important for every business to manage the cost and activities of
the company. The main importance of the cost accounting is its capability to put a light over
the entire profitability position and the performance of the company. It depict about the
financial position and workings of the business. Cost accounting permits the manager to
manage the cash flows of the company. it also assist the manager to identify that whether the
1 Don, Hansen, Mowen Maryanne, and Guan Liming. Cost management: accounting and
control. Cengage Learning, 2007.
2 Richard Lambert, Leuz Christian, and Verrecchia Robert E. "Accounting information,
disclosure, and the cost of capital." Journal of accounting research 45.2 (2007): 385-420.
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company is making profits or not, whether the organization need some tighten system and
some priorities must be reassessed according to the current performance and the position.
Thus according to the above evaluation, it has been found that the cost accounting is
very significant for the organization.
1.2)
Tools of costing design and system:
Costing design and system of an organization depicts that an organization is always
required to look over various factors and aspects while taking a decision about the costing
design system. The costing design system is a tool which helps the organization to make the
costing reports in order to make better decisions about the performance and the position of
the company3.
A cost design system helps the manager of the company to collect the information and
arrange them in such a manner that the good decision could be taken from the company and
the manufacturing process of the company could also be managed. Overhead or indirect cost
is calculated through it which assists the company to make various new decisions. The tools
of costing design system are as follows:
a. external cost design system control
b. internal cost design system control
External cost design system control:
External cost design control system applied for analyzing the performance and the
position of the company4. These standards are used by the companies to shape the firm in a
proper way and the cost ratios are also calculated through it. Ratio analysis and the
3 Arik Azoulay, et al. "The use of the transition cost accounting system in health services
research." Cost Effectiveness and Resource Allocation 5.1 (2007): 11.
4 Charles T. Horngren, Cost accounting: A managerial emphasis, 13/e. Pearson Education
India, 2009.
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controlling power of the government and the stakeholders are the external cost design system
which is managed by the companies through external sources to analyze and evaluate the
position of the company as well as it also helps the company to make various better and new
decisions about the position and the performance of the company.
Internal cost design system control:
Internal cost design control system applied for analyzing the performance and the
position of the company through internal factors. These standards are used by the companies
to shape the firm in a proper way and the cost ratios are also calculated through it5.
Budgeting, capital budget, revenue budget, standard costing and variance analysis are the
internal cost design system which is managed by the companies through internal sources to
analyze and evaluate the position of the company as well as it also helps the company to
make various better and new decisions about the position and the performance of the
company.
1.3)
Recommendation:
Lastly, the study has been performed over the costing and pricing system of the
comapny to analyze the best policies and strategies for improving the position of the pricing
system and costing system of the company. An organization is always suggested to look over
various factors and aspects while making a decision about the costing system and the pricing
policies of the company.
Costing and pricing decision of the organization could be taken through analyzing all
the internal and external cost factors of the company. These would help the comapny to make
a better decision about reducing the level of the cost and enhancing the level of the price. The
internal aspect which must be considered by the comapny while making a decision about the
costing and pricing is capital budgeting, budget evaluation, variance analysis and standard
costing whereas the external costing system are the cost ratios6. All of these technologies and
5 Glen, Arnold. Corporate financial management. Pearson Education, 2008.
6 Horne Van, James and Wachowicz John Martin. Fundamentals of financial management.
Pearson Education, 2008.
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the aspect are the method to evaluate the total cost of the comapny and predict the future on
the basis of financial information so that a better policy and strategy could be made by the
company for managing the cost and pricing of the company.
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Que 2)
Analysis of the financial performance:
2.1)
Financial statement analysis:
Financial statement analysis is the accounting method which is used by the companies
to analyze the financial position of the company. The financial position of the company is
analyzed on various bases. Mainly, the analyst and the financial manager of a company
analyze the financial position and the performance of the company through analyzing the
financial statement of a company7. For this analysis, ford motors have been analyzed and the
study has been done over the financial statement of ford motors.
The financial statement of Ford Motors could be analyzed by the financial analyst and
financial manager of a company on various bases such as through analyzing the last 3 year
statement, through analyzing some key financial figures from the financial statement of the
company, by conducting the study of the trend analysis of the company, by analyzing the
study of horizontal analysis of the company and by conducting the study of ratio analysis
over the company and through comparing these figures from the financial statement8. The
analysis study over the financial statement of ford motors is as follows:
7 Robert Higgins, Analysis for financial management. McGraw-Hill/Irwin, 2012.
8 Alan Shapiro, Multinational financial management. John Wiley & Sons, 2008.
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As
Reported
AnnualReport Date12/31/201
6
12/31/201
5
12/31/201
4
Scale Millions Millions Millions
Total Sales revenues149558 3.80% 144077 -1.93% 146917
Automotive cost of sales124041 0.43% 123516 -1.37% 125234
Gross Profit 25517 24.10% 20561 -5.17% 21683
Operating Expense
Selling, administrative & other expenses14999 6.25% 14117 7.14% 13176
Operating Income10518 63.22% 6444 -24.25% 8507
Other income
Automotive interest income & other income net1188 1463.16% 76 -92.20% 974
Financial services other income, net372 6.90% 348 0.00% 348
Equity in net income of affiliated companies1818 42.59% 1275 19.27% 1069
Other Expense
Financial Services interest expense2454 -9.08% 2699 -5.63% 2860
Financial services provision for credit & insurance losses417 36.72% 305 46.63% 208
Automotive interest expense773 -3.01% 797 -3.86% 829
Income (loss) before income taxes10252 136.11% 4342 -37.98% 7001
Provision for (benefit from) income taxes2881 149.22% 1156 -886.39% -147
Net income 7371 131.36% 3186 -55.43% 7148
income (loss) attributable to noncontrolling interests2 100.00% 1 -85.71% 7
Net income (loss) attributable to Ford Motor Company7373 131.35% 3187 -55.46% 7155
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As
Reported
AnnualReport Date12/31/201
6
12/31/201
5
12/31/201
4
Scale Millions Millions Millions
Total Sales revenues149558 100.00% 144077 100.00% 146917
Automotive cost of sales124041 82.94% 123516 85.73% 125234
Gross Profit 25517 17.06% 20561 14.27% 21683
Operating Expense
Selling, administrative & other expenses14999 10.03% 14117 9.80% 13176
Operating Income10518 7.03% 6444 4.47% 8507
Other income
Automotive interest income & other income net1188 0.79% 76 0.05% 974
Financial services other income, net372 0.25% 348 0.24% 348
Equity in net income of affiliated companies1818 1.22% 1275 0.88% 1069
Other Expense
Financial Services interest expense2454 1.64% 2699 1.87% 2860
Financial services provision for credit & insurance losses417 0.28% 305 0.21% 208
Automotive interest expense773 0.52% 797 0.55% 829
Income (loss) before income taxes10252 6.85% 4342 3.01% 7001
Provision for (benefit from) income taxes2881 1.93% 1156 0.80% -147
Net income 7371 4.93% 3186 2.21% 7148
income (loss) attributable to noncontrolling interests2 0.00% 1 0.00% 7
Net income (loss) attributable to Ford Motor Company7373 4.93% 3187 2.21% 7155
Further, it is also easier for analysts to analyze and assess the position of the comapny
in terms of finance of Ford Motors through conducting the study of ratio analysis over the
company. It would help the company to make various better decisions. Ratio analysis are of
various types and it helps the comapny to analyze the financial position of the company on
the various levels such as liquidity level, debt level, capital structure level profitability level,
solvency level and the efficiency level9.
9 Eugene Brigham, and Houston Joel F. Fundamentals of financial management. Cengage
Learning, 2012.
.
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Thus it is easy for the company to analyze and investigate the financial statement of
the company through conducting the horizontal analysis, vertical analysis, analysis over the
key financial terms, ratio analysis etc.
2.2)
Financial statement evaluation:
Financial statement evaluation is crucial or every organization to identify and analyze
the position as well as analyzing the performance of the company in a specific year. For
instance, it is easier for analysts to analyze and assess the position of the finance of a
company through conducting the study of ratio analysis over the company10. It would help the
company to make various better decisions. Ratio analysis are of various types and it helps the
comapny to analyze the financial position of the company on the various levels such as
liquidity level, debt level, capital structure level profitability level, solvency level and the
efficiency level11.
Ratio analysis study depict about the profitability position which helps the comapny
to analyze that gross profit, net profit and the return on equity of the company. Further, the
liquidity position of the company is analyzing through identifying the current and quick
position of the company. More, the efficiency position of the company is analyzing through
identifying the receivable collection period, payable collection period and asset turnover ratio
position of the company12. Lastly, the solvency position of the company is analyzing through
identifying the debt equity and debt asset position of the company
10 Glen Arnold. Corporate financial management. Pearson Higher Ed, 2013.
11 Evert Wipplinger. "Philippe Jorion: Value at Risk-The New Benchmark for Managing
Financial Risk." Financial Markets and Portfolio Management 21.3 (2007): 397.
12 Söhnke M. Bartram, Brown Gregory W, and Fehle Frank R. "International evidence on
financial derivatives usage." Financial management 38.1 (2009): 185-206.
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Description Formula
Profitability
Net margin Net profit/revenues
Return on equity Net profit/Equity13
Liquidity
Current ratio
Current
assets/current
liabilities
Quick Ratio
Current assets-
Inventory/current
liabilities
Efficiency
Receivables
collection period
Receivables/ Total
sales*365
Payables collection
period
Payables/ Cost of
sales*365
Asset turnover ratio
Total sales/ Total
assets14
Solvency
Debt to Equity Ratio Debt/ Equity
Debt to assets Debt/ Total assets
The ratio analysis study has been performed over Ford Motors to manage the
performance and the position of the comapny. Following is the study of ratio analysis:
13 Eugene F. Brigham, and Ehrhardt Michael C. Financial management: Theory & practice.
Cengage Learning, 2013
14 Eugene F. Brigham, and Houston Joel F. Fundamentals of financial management. Cengage
Learning, 2012.
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Description Formula
2016 2015 2014
Profitability
Net margin Net profit/revenues 4.93% 2.21% 4.87%
Return on equity Net profit/Equity 25.64% 12.66% 26.72%
Liquidity
Current ratio
Current assets/current
liabilities 1.94 1.75 1.77
Quick Ratio
Current assets-
Inventory/current
liabilities 1.83 1.65 1.67
Efficiency
Receivables collection
period
Receivables/ Total
sales*365 248.87 235.14 216.91
Payables collection
period
Payables/ Cost of
sales*365 5.23 7.39 3.66
Asset turnover ratio
Total sales/ Total
assets 0.66 0.69 0.73
Solvency
Debt to Equity Ratio Debt/ Equity 6.82 7.28 6.55
Debt to assets Debt/ Total assets 0.87 0.88 0.87
Ford Motors
According to the study, it has been analyzed that the position and the performance of
the comapny has been better from last two years in few terms. The profitability position of
the comapny has been better and further, the comapny has made various changes into its
position to enhance the position.
2.3)
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Recommendation:
Lastly, the study has been performed over the strategic portfolio of the Ford Motors to
analyze the best policies and strategies for improving the financial position and the
performance of the company. Ford Motors is suggested to look over various factors and
aspects while making a decision about the strategic portfolio of the company. Strategic
portfolio is the combination of various investments which would offer the high return to the
company and lesser risk so that the goals and objectives of the company could be achieved.
Strategic portfolio of the company decides about the total investment of the company.
Strategic portfolio of the organization could be evaluated through analyzing all the internal
and external financial factors of the company. These would help the comapny to make a
better decision about maintaining the financial position of the company. Though the various
methods such as trend analysis, vertical analysis, ratio analysis and key financial figures
analysis which has been conducted over the financial statements of the comapny, it has been
analyzed that the position and the performance of the comapny has been better from last two
years in few terms. The profitability position of the comapny has been better and further, the
comapny has made various changes into its position to enhance the position.
All of these technologies and the method have helped the comapny to evaluate the
various portfolios and the position of the comapny and predict the future on the basis of
financial information so that a better policy and strategy could be made by the company for
managing the risk and return factor of the business.
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Que 3)
Budgetary process of organization:
3.1)
Evaluation of budgetary targets:
Budgetary is a process which is managed by the companies to predict the future of the
company. This process is prepared for the companies to analyze and identify the position of
the organization in near future. This case helps the company to manage and analyze the
various expenses and revenue15. Through the budgeting process, it becomes easy for the
company to analyze the extra cost and on the basis of it, comapny could make new strategic
and plan to reduce the level of the cost. Budgetary reports set a target for the organization
through considering the various internal and external information and managing them in
proper manner. According to the budgetary reports, it becomes easy for the organization to
make proper decision about the performance of the company:
Budgeting report
20X1 20X2 20X3 20X4 20X5 20X6
Sales 30000 32400 34992 37791.4 40000 40000
Unit Selling price 6.5 6.63 6.968 7.384 8.127 8.775
Sales Price 195000 214812 243824 279051 325080 351000
Less: cost of goods sold 150000 165240 187557 214655 240800 260000
Gross Profit 45000 49572 56267.1 64396.5 84280 91000
Less:
General and
administrative expenses 27300 30073.7 34135.4 39067.2 45511.2 49140
Dividend 6972.73 7681.16 8718.56 9978.2 15272.6 16490.3
Profit 10727.3 11817.2 13413.2 15351.1 23496.2 25369.7
Less: Tax 4290.91 4726.87 5365.27 6140.43 9398.5 10147.916
15 Cinquini, L, and Andrea T. "Strategic management accounting and business strategy: a
loose coupling?." Journal of Accounting & organizational change 6.2 (2010): 228-259.
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Net Profit 6436.36 7090.3 8047.91 9210.65 14097.7 15221.8
This above given table depict that the company has predicted the future of the
company according to the 2011 years performance and the historical data and the market
information. Through this analysis, it has been found that the sales of the company would
enhance by 8% and the maximum limit of the sales is 40000 units. Further, various changes
have been depicted and it sets a target for the company to manage extra activities according
to that. These targets also help an organization to achieve the objectives and the goals.
3.2)
Development of master budget:
A master budget is the combination of all the budgets which has been produced by the
company through analyzing the various functions and the areas of the company. Master
budget also includes the financial statements, forecast of the cash, and creating a financial
plan. Master budget of a company could be prepared and presented by the organization on
monthly basis, quarterly basis or yearly basis. Master budget of a company is central planning
point which is used by the management to direct the activities and the performance of the
company.
Master budget of an organization includes the following budgets:
 direct material budget
 direct labour budget
 manufacturing overhead budget
 sales budget
 production budget17
16 Yi Ma, and Tayles Mike "On the emergence of strategic management accounting: an
institutional perspective." Accounting and Business Research 39.5 (2009): 473-495.
17 , Katja Tillmann, and Goddard Andrew. "Strategic management accounting and sense-
making in a multinational company." Management accounting research 19.1 (2008): 80-102.
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 selling and administrative expenses budget
 finished goods budget
The calculation of master budget has been given into the appendix and through this
analysis, it has been found that the all the budgets impact over the budget to make a better
decision about the performance and the position of the comapny. The master budget of the
company would also help the company to manage and analyze the various positions and the
strategy of the company18.
This process is prepared for the companies to analyze and identify the position of the
organization in near future. This case helps the company to manage and analyze the various
expenses and revenue. Through the budgeting process, it becomes easy for the company to
analyze the extra cost and on the basis of it, comapny could make new strategic and plan to
reduce the level of the cost.
3.3)
Evaluation of the budget and its process:
Further, the evaluation study has been done over the budgets and its process to
manage and identify the position and the performance of the company. Budgetary is a process
which is managed by the companies to predict the future of the company. This process is
prepared for the companies to analyze and identify the position of the organization in near
future19. This method helps the company to manage and analyze the various expenses and
revenue. Through the budgeting process, it becomes easy for the company to analyze the
18 Simon Cadez, and Guilding Chris. "An exploratory investigation of an integrated
contingency model of strategic management accounting." Accounting, organizations and
society 33.7 (2008): 836-863.
19 Kim Langfield-Smith. "Strategic management accounting: how far have we come in 25
years?." Accounting, Auditing & Accountability Journal 21.2 (2008): 204-228.
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extra cost and on the basis of it, comapny could make new strategic and plan to reduce the
level of the cost.
The process of the budgeting has been discussed below:
a. strategic plan:
Firstly, it is required for the business to manage the strategic plan for the budgeting
process of the company.
b. Business goals:
More, it is required for the business to set the business gaols according to the strategic
plan of the company.
c. Revenue projection:
More, the revenue projection must be done for the betterment of the company20.
d. Fixed cost projection:
Additionally, the projection must be done over the future cost for the betterment of
the company.
e. Variable cost projection:
Additionally, the projection must be done over the future variable cost for the
betterment of the company21.
f. Annual goal expenses:
Additionally, the annual goal expenses must be analyzed by the managers for the
betterment of the company.
g. Target profit margin:
Further, the organizations and the management of the company are required to
manage the target profit of the company and the performance of the company22.
20 Beverley R. Lord. "Strategic management accounting." Issues in Management
Accounting 135 (2007).
21 Bill Nixon, and Burns John. "Strategic management accounting." (2012): 225-228
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h. Board approval:
Further, the management is required to take the approval about the reports and project
from the management of the company.
i. Budget review:
More, the budget review must be done by the company.
j. Dealing with budget variances:
And lastly, the company is required to analyze the budgets and conduct the variance
analysis study to make a better decision about the performance and the position of the
company.
22 Mike Tayles. "Strategic management accounting." Review of Management Accounting
Research. Palgrave Macmillan UK, 2011. 22-52.
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Que 4)
Long term and short term sources:
4.1)
Need for short term working capital and long term funds:
A comapny is required to manage the funds and the financial stability to manage the
activities, operations and the functions of the company. Through the study and analysis over
the company, it has been found that the company is required to manage and maintain the
short term and long term funds to manage the performance and position of the company.
Short term working capital of the company is the total amount of current assets less
current liabilities which is used by the companies to maintain and manage the various
positions and the performance of the company. Working capital of an organization calculates
the efficiency and the short term financial health of a company. It is required for the business
to manage the short term working capital to manage the operating cycle, production cycle,
cash conversion cycle etc. short term working capital directly affects the liquidity position of
the company. So it becomes important for the company to manage the short term working
capital23.
Further, the long term funds of the company are the total amount of debt and the
equity which is used by the companies to maintain and manage the various positions and the
performance of the company. Long term funds of an organization calculate the efficiency and
the long term financial health of a company. It is required for the business to manage the long
term funds to manage the solvency position of the company. Long term funds directly affect
the debt structure position of the company24. So it becomes important for the company to
manage the long term funds.
4.2)
Appropriate source of short term funds:
23 Zahirul Hoque. Strategic management accounting. Spiro Press, 2002.
24 Keith Ward. Strategic management accounting. Routledge, John Wiley & Sons, 2012
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Short term funds are required by the companies to maintain and manage the various
positions and the performance of the company. Short term funds analyze the efficiency and
the short term financial health of a company. It is required for the business to manage the
short term funds to manage the operating cycle, production cycle, cash conversion cycle etc.
short term funds directly affects the liquidity position of the company.
Source of short term funds are as follows:
a. overdraft agreement
b. customer advances
c. accounts receivable financing
d. selling goods on instalment
e. bank overdraft25
f. t bills
g. commercial paper
Above given sources are some of the source through which the comapny could enhance
the level of the short term funds and could also manage the performance and the position of
the company. It also helps the company to manage and identify the efficiency position and
the profitability position of the company26.
4.3)
Choice of sources:
25 Simon, Alcouffe, Berland Nicolas, and Levant Yves. "Actor-networks and the diffusion of
management accounting innovations: A comparative study." Management Accounting
Research 19.1 (2008): 1-17
26 Josep, Bisbe, Batista-Foguet, Joan-Manuel and Chenhall Robert. "Defining management
accounting constructs: A methodological note on the risks of conceptual
misspecification." Accounting, organizations and society 32.7 (2007): 789-820.
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Short term funds and long term funds are required by the companies to maintain and
manage the various positions and the performance of the company. These funds analyze the
efficiency and the financial health of a company27. It is required for the business to manage
the short term funds as well as long term funds to manage the various position and level of
the company.
Source of short term and long term funds are as follows:
a. Overdraft agreement
b. Customer advances
c. Accounts receivable financing
d. Selling goods on instalment
e. Bank overdraft28
f. T bills
g. Commercial paper
h. Retain profit
i. Long term loan from bank
j. Equity and debenture issue etc.
Through the study over all the above given sources it has been found that the various
sources are always available for a company to raise the funds but it depend upon the nature,
industry and the economy position of the company to manage and identify risk and return of
all the sources29.
27 Kari Lukka. "Management accounting change and stability: loosely coupled rules and
routines in action." Management Accounting Research 18.1 (2007): 76-101.
28 Abdel-Kader, Magdy, and Luther Robert. "The impact of firm characteristics on
management accounting practices: A UK-based empirical analysis." The British Accounting
Review 40.1 (2008): 2-27.
29 Teemu Malmi, and Granlund Markus. "In search of management accounting theory."
European Accounting Review 18.3 (2009): 597-620
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From the above analysis, it has been found that for the long term funds, debt and equity
is the best option for the company and at the same time, for the short term funds, bank
overdraft is a good option as these options would not affect the position and the performance
of the company and at the same time, the risk and return from these sources would also be
lesser rather than the other available sources.
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Que 5)
Investment appraisal:
5.1)
Financial appraisal methods:
Financial appraisal method is a technique which is used by the organization to
identify various available methods and analyze them in a proper way. These financial
appraisal methods analyze the investment project and opportunity on various bases and offer
a recommendation to the company according to the return, risk, payback etc30.
Following are some of the methods of financial appraisal which is used by the
organizations to identify and analyze the various projects:
1. Net present value (NPV):
Net present value is one of the most used investment appraisal techniques. This
technique assists the comapny to analyze the one or more investment options and analyze
them on the basis of their present value of cash inflows and present value of cash outflows.
2. Internal rate of return:
This technique calculates the profitability position of potential investors. T is a discount
rate which makes the NPV of cash flows of an investment opportunity equals to zero.
3. Benefit / Cost ratio
30 Simon, Cadez, and Guilding Chris. "An exploratory investigation of an integrated
contingency model of strategic management accounting." Accounting, organizations and
society 33.7 (2008): 836-863.
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4. Discounted payback:
Discounted payback is the total amount which takes for the total investment of
the project to get equals to the discounted value of cash inflow of the comapny. It is
the total period in which the cumulative value of the project equals to zero.
5. ARR:
Average rate of return is a technique to evaluate the investment proposal. This
ratio does not take the concern of concept of time value of money. It evaluates the
return which is generated from net income of the proposed capital investment of the
comapny.
6. Payback:
Payback is the total amount which takes for the total investment of the project
to get equals to the present value of cash inflow of the comapny. It is the total period
in which the cumulative value of the project equals to zero.
7. Scenario analysis:
8. Sensitivity analysis:
9. Switching values:
10. Distributional analysis etc.31
All of these techniques are analyzed by the comapny according to its nature and the
performance of the company is the market. Such as a profit making comapny must look over
the net present value of the investment to analyze the total return form that investment
whereas public limited companies are suggested to use the internal rate of return technique to
manage the performance and take a decision about the best investment proposal32.
31 Norman B., Macintosh, and Quattrone Paolo. Management accounting and control
systems: An organizational and sociological approach. John Wiley & Sons, 2010.
32 Thomas, Ahrens and S. Chapman Christopher. "Management accounting as
practice." Accounting, organizations and society32.1 (2007): 1-27.
26

Strategic Financial Management
A company is suggested to look over various methods and the performance to make a
better decision about the best evaluation technique and the investment proposal of the
comapny.
5.2)
Strategic investment decision:
Strategic investment decision is the process to analyze various investments and make a
better decision about the performance and the position of the company. An organization is
required to look over the various techniques to analyze the comapny according to its nature
and the performance of the company is the market. Such as a profit making comapny must
look over the net present value of the investment to analyze the total return form that
investment whereas public limited companies are suggested to use the internal rate of return
technique to manage the performance and take a decision about the best investment
proposal33.
For instance, following is the case study:
Initial Outlay PROJECT A PROJECT B
-RM600,000 -RM160,000
Inflow year 1 40,000 76,000
Inflow year 2 1,00,000 48,000
Inflow year 3 50,000 72,000
Inflow year 4 7,80,000 42,000
Following are few methods to solve the above case and make a better decision that
which project must be accepted:
a) Calculation of Payback period
Years Cash Flow C.F
0 -6,00,000 -6,00,000
1 40,000 -560000
2 1,00,000 -460000
3 50,000 -410000
33 Jerrold L. Zimmerman, and Yahya-Zadeh Massood. "Accounting for decision making and
control." Issues in Accounting Education 26.1 (2011): 258-259.
27

Strategic Financial Management
4 7,80,000 370000
Payback period = cost of the investment / annual net cash
flow 4.53
a) Calculation of Payback period
Years Cash Flow C.F
0 -1,60,000 -1,60,000
1 76,000 -84000
2 48,000 -36000
3 72,000 36000
4 42,000 78000
Payback period = cost of the investment / annual net cash
flow 2.47
b) Calculation of Net Present Value
Years Cash Flow P.V. Factor Present Value
0 -6,00,000 1 -6,00,000
1 40,000 0.8850 35,398
2 1,00,000 0.7831 78,315
3 50,000 0.6931 34,653
4 7,80,000 0.6133 4,78,389
NPV= Total Cash Inflow-Total cash
outflow 26,754
b) Calculation of Net Present Value
Years Cash Flow P.V. Factor Present Value
0 -1,60,000 1 -1,60,000
1 76,000 0.8850 67,257
2 48,000 0.7831 37,591
3 72,000 0.6931 49,900
4 42,000 0.6133 25,759
NPV= Total Cash Inflow-Total cash
outflow 20,507
28

Strategic Financial Management
c) Calculation of Discounted payback period
Years Cash Flow
P.V.
Factor
Present
Value C.F.
0 -6,00,000 1
-
6,00,000
-
6,00,000
1 40,000 0.8850 35,398
-
5,64,602
2 1,00,000 0.7831 78,315
-
4,86,287
3 50,000 0.6931 34,653
-
4,51,635
4 7,80,000 0.6133 4,78,389 26,754
Payback period = cost of the investment / annual
net cash flow 3.94
c) Calculation of Discounted payback period
Years Cash Flow
P.V.
Factor
Present
Value C.F.
0 -1,60,000 1
-
1,60,000
-
1,60,000
1 76,000 0.8850 67,257
-
92,743
2 48,000 0.7831 37,591
-
55,152
3 72,000 0.6931 49,900
-
5,253
4 42,000 0.6133 25,759 20,507
Payback period = cost of the investment / annual net
cash flow 3.20
d) Calculation of Profitability Index
Years
Cash
Outflow Cash Inflow Factors
P.V. of Cash
Inflow
P.V. of Cash
Outflow
0 6,00,000 1 600000
1 40,000 0.885 35,398
2 1,00,000 0.783 78,315
3 0.693 34,653
29

Strategic Financial Management
50,000
4 7,80,000 0.613 4,78,389
6,26,754 600000
PI= Total Cash Inflow/Initial Investment 1.045
d) Calculation of Profitability Index
Years
Cash
Outflow
Cash
Inflow Factors
P.V. of Cash
Inflow
P.V. of Cash
Outflow
0 1,60,000 1 160000
1 76,000 0.885 67,257
2 48,000 0.783 37,591
3 72,000 0.693 49,900
4 42,000 0.613 25,759
1,80,507 -160000
PI= Total Cash Inflow/Initial Investment 1.128
The above calculations over both the projects explain that project A would offer more
profits and the returns to the investors rather than project B. So, it is recommended to the
investors to go for project A. This decision depict that the company must look over various
methods to manage the decision so that the efficiency of the comapny could be enhanced.
5.3)
Analysis over strategic investment decisions:
Further, the study has been performed over the strategic investment decision of the
comapny to analyze the best policies and strategies for improving the financial position and
the performance of the company. An organization is always suggested to look over various
factors and aspects while making a decision about the strategic investment decision of the
company. Strategic investment decision is the study over the various investments which
30

Strategic Financial Management
would offer the high return to the company and lesser risk so that the goals and objectives of
the company could be achieved34.
Strategic investment decision of the company decides about the total investment of
the company. Strategic investment decision of the organization could be evaluated through
analyzing all the internal and external financial and non financial factors of the company.
These would help the comapny to make a better decision about maintaining the financial
position of the company. The internal aspect which must be considered by the comapny while
making a decision about the strategic investment decision of the company is net present
value, internal rate of return, discounted payback period and accounting rate of return
analysis. All of these technologies and the aspect are the method to evaluate the various
investments and the position of the comapny and predict the future on the basis of financial
information so that a better policy and strategy could be made by the company for managing
the risk and return factor of the company.
34 Don, Hansen, Mowen Maryanne, and Guan Liming. Cost management: accounting and
control. Cengage Learning, 2007..
31

Strategic Financial Management
References:
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accounting practices: A UK-based empirical analysis." The British Accounting Review 40.1
(2008): 2-27.
Ahrens, Thomas, and Christopher S. Chapman. "Management accounting as
practice." Accounting, organizations and society32.1 (2007): 1-27.
Alcouffe, Simon, Nicolas Berland, and Yves Levant. "Actor-networks and the diffusion of
management accounting innovations: A comparative study." Management Accounting
Research 19.1 (2008): 1-17.
Arnold, Glen. Corporate financial management. Pearson Education, 2008.
Azoulay, Arik, et al. "The use of the transition cost accounting system in health services
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Bartram, Söhnke M., Gregory W. Brown, and Frank R. Fehle. "International evidence on
financial derivatives usage." Financial management 38.1 (2009): 185-206.
Bisbe, Josep, Joan-Manuel Batista-Foguet, and Robert Chenhall. "Defining management
accounting constructs: A methodological note on the risks of conceptual
misspecification." Accounting, organizations and society 32.7 (2007): 789-820.
Brigham, Eugene F., and Joel F. Houston. Fundamentals of financial management. Cengage
Learning, 2012.
Brigham, Eugene F., and Michael C. Ehrhardt. Financial management: Theory & practice.
Cengage Learning, 2013.
Brigham, Eugene, and Phillip Daves. Intermediate financial management. Nelson Education,
2012.
Cadez, Simon, and Chris Guilding. "An exploratory investigation of an integrated
contingency model of strategic management accounting." Accounting, organizations and
society 33.7 (2008): 836-863.
32

Strategic Financial Management
Cinquini, Lino, and Andrea Tenucci. "Strategic management accounting and business
strategy: a loose coupling?." Journal of Accounting & organizational change 6.2 (2010):
228-259.
Hansen, Don, Maryanne Mowen, and Liming Guan. Cost management: accounting and
control. Cengage Learning, 2007.
Higgins, Robert C. Analysis for financial management. McGraw-Hill/Irwin, 2012.
Hoque, Zahirul. Strategic management accounting. Spiro Press, 2002.
Horngren, Charles T. Cost accounting: A managerial emphasis, 13/e. Pearson Education
India, 2009.
Lambert, Richard, Christian Leuz, and Robert E. Verrecchia. "Accounting information,
disclosure, and the cost of capital." Journal of accounting research 45.2 (2007): 385-420.
Langfield-Smith, Kim. "Strategic management accounting: how far have we come in 25
years?." Accounting, Auditing & Accountability Journal 21.2 (2008): 204-228.
Lord, Beverley R. "Strategic management accounting." Issues in Management
Accounting 135 (2007).
Lukka, Kari. "Management accounting change and stability: loosely coupled rules and
routines in action." Management Accounting Research 18.1 (2007): 76-101.
Ma, Yi, and Mike Tayles. "On the emergence of strategic management accounting: an
institutional perspective." Accounting and Business Research 39.5 (2009): 473-495.
Macintosh, Norman B., and Paolo Quattrone. Management accounting and control systems:
An organizational and sociological approach. John Wiley & Sons, 2010.
Malmi, Teemu, and Markus Granlund. "In search of management accounting
theory." European Accounting Review 18.3 (2009): 597-620.
Nixon, Bill, and John Burns. "Strategic management accounting." (2012): 225-228.
Shapiro, Alan C. Multinational financial management. John Wiley & Sons, 2008.
Tayles, Mike. "Strategic management accounting." Review of Management Accounting
Research. Palgrave Macmillan UK, 2011. 22-52.
33

Strategic Financial Management
Tillmann, Katja, and Andrew Goddard. "Strategic management accounting and sense-making
in a multinational company." Management accounting research 19.1 (2008): 80-102.
Van Horne, James C., and John Martin Wachowicz. Fundamentals of financial management.
Pearson Education, 2008.
Ward, Keith. Strategic management accounting. Routledge, John Wiley & Sons, 2012.
Wipplinger, Evert. "Philippe Jorion: Value at Risk-The New Benchmark for Managing
Financial Risk." Financial Markets and Portfolio Management 21.3 (2007): 397.
Zimmerman, Jerrold L., and Massood Yahya-Zadeh. "Accounting for decision making and
control." Issues in Accounting Education 26.1 (2011): 258-259.
34

Strategic Financial Management
Appendix:
Monthly sales revenue budget
Sales Units
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Bikini
1,50
0
1,20
0 1,300
1,00
0 400 500 400 200
1,30
0
1,20
0
1,20
0
1,50
0
Board short
1,20
0
1,10
0 1,160
1,00
0 600 700 500 400
1,16
0
1,10
0
1,10
0
1,20
0
Towel 400 300 260 140 80 40 40 40 260 300 300 400
Beach Bag 200 180 160 120 60 40 40 40 160 180 180 200
Selling unit
Bikini
$
100.
00
$
100.
00
$
100.0
0
$
100.
00
$
100
.00
$
100.
00
$
100
.00
$
100
.00
$
100.
00
$
100.
00
$
100.
00
$
100.
00
Board short
$
75.0
0
$
75.0
0
$
75.00
$
75.0
0
$
75.
00
$
75.0
0
$
75.
00
$
75.
00
$
75.0
0
$
75.0
0
$
75.0
0
$
75.0
0
Towel
$
45.0
0
$
45.0
0
$
45.00
$
45.0
0
$
45.
00
$
45.0
0
$
45.
00
$
45.
00
$
45.0
0
$
45.0
0
$
45.0
0
$
45.0
0
Beach Bag
$
65.0
0
$
65.0
0
$
65.00
$
65.0
0
$
65.
00
$
65.0
0
$
65.
00
$
65.
00
$
65.0
0
$
65.0
0
$
65.0
0
$
65.0
0
Sales
Revenue
Bikini
$
1,50
,000
$
1,20
,000
$
1,30,0
00
$
1,00
,000
$
40,
000
$
50,0
00
$
40,
000
$
20,
000
$
1,30
,000
$
1,20
,000
$
1,20
,000
$
1,50
,000
Board short
$
90,0
00
$
82,5
00
$
87,00
0
$
75,0
00
$
45,
000
$
52,5
00
$
37,
500
$
30,
000
$
87,0
00
$
82,5
00
$
82,5
00
$
90,0
00
Towel
$
18,0
00
$
13,5
00
$
11,70
0
$
6,30
0
$
3,6
00
$
1,80
0
$
1,8
00
$
1,8
00
$
11,7
00
$
13,5
00
$
13,5
00
$
18,0
00
Beach Bag
$
13,0
00
$
11,7
00
$
10,40
0
$
7,80
0
$
3,9
00
$
2,60
0
$
2,6
00
$
2,6
00
$
10,4
00
$
11,7
00
$
11,7
00
$
13,0
00
Total Sales
Revenue
$
2,71
,000
$
2,27
,700
$
2,39,1
00
$
1,89
,100
$
92,
500
$
1,06
,900
$
81,
900
$
54,
400
$
2,39
,100
$
2,27
,700
$
2,27
,700
$
2,71
,000
35

Strategic Financial Management
Cash collection budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Total Sales
Revenue
271
000
227
700
23910
0
189
100
925
00
106
900
819
00
544
00
239
100
227
700
227
700
271
000
Total cash
sales
542
00
455
40 47820
378
20
185
00
213
80
163
80
108
80
478
20
455
40
455
40
542
00
Credit sales
(1st month
amount)
162
600
136
620
14346
0
113
460
555
00
641
40
491
40
326
40
143
460
136
620
136
620
162
600
Credit sales
(2nd month
amount)
108
400 91080
956
40
756
40
370
00
427
60
327
60
217
60
956
40
910
80
910
80
Total Cash
collection
216
800
290
560
28236
0
246
920
149
640
122
520
108
280
762
80
213
040
277
800
273
240
307
880
Production budget in units
Budgeted
sales
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Bikini
1,50
0
1,20
0 1,300
1,00
0 400 500 400 200
1,30
0
1,20
0
1,20
0
1,50
0
Board short
1,20
0
1,10
0 1,160
1,00
0 600 700 500 400
1,16
0
1,10
0
1,10
0
1,20
0
Towel 400 300 260 140 80 40 40 40 260 300 300 400
Beach Bag 200 180 160 120 60 40 40 40 160 180 180 200
Add: desired
ending
inventory
Bikini 750 600 650 500 200 250 200 100 650 600 600 750
Board short 600 550 580 500 300 350 250 200 580 550 550 600
Towel 200 150 130 70 40 20 20 20 130 150 150 200
Beach Bag 100 90 80 60 30 20 20 20 80 90 90 100
Total needs
Bikini
2,25
0
1,80
0 1,950
1,50
0 600 750 600 300
1,95
0
1,80
0
1,80
0
2,25
0
Board short
1,80
0
1,65
0 1,740
1,50
0 900
1,05
0 750 600
1,74
0
1,65
0
1,65
0
1,80
0
Towel 600 450 390 210 120 60 60 60 390 450 450 600
36

Strategic Financial Management
Beach Bag 300 270 240 180 90 60 60 60 240 270 270 300
Less:
Beginning
Inventory
Bikini 750 600 650 500 200 250 200 100 650 600 600
Board short 600 550 580 500 300 350 250 200 580 550 550
Towel 200 150 130 70 40 20 20 20 130 150 150
Beach Bag 100 90 80 60 30 20 20 20 80 90 90
Required
production
Bikini
2,25
0
1,05
0 1,350 850 100 550 350 100
1,85
0
1,15
0
1,20
0
1,65
0
Board short
1,80
0
1,05
0 1,190 920 400 750 400 350
1,54
0
1,07
0
1,10
0
1,25
0
Towel 600 250 240 80 50 20 40 40 370 320 300 450
Beach Bag 300 170 150 100 30 30 40 40 220 190 180 210
Total
Required
production
4,95
0
2,52
0 2,930
1,95
0 580
1,35
0 830 530
3,98
0
2,73
0
2,78
0
3,56
0
Direct Material and cash purchase budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Budgeted
production
units
Bikini
225
0
105
0 1350 850 100 550 350 100
185
0
115
0
120
0
165
0
Board short
180
0
105
0 1190 920 400 750 400 350
154
0
107
0
110
0
125
0
Towel 600 250 240 80 50 20 40 40 370 320 300 450
Beach Bag 300 170 150 100 30 30 40 40 220 190 180 210
Material
units needed
for
production
Bikini
225
0
105
0 1350 850 100 550 350 100
185
0
115
0
120
0
165
0
Board short
180
0
105
0 1190 920 400 750 400 350
154
0
107
0
110
0
125
0
Towel 600 250 240 80 50 20 40 40 370 320 300 450
37

Strategic Financial Management
Beach Bag 300 170 150 100 30 30 40 40 220 190 180 210
Add: desired
inventory
level
Bikini
112
5 525 675 425 50 275 175 50 925 575 600 825
Board short 900 525 595 460 200 375 200 175 770 535 550 625
Towel 300 125 120 40 25 10 20 20 185 160 150 225
Beach Bag 150 85 75 50 15 15 20 20 110 95 90 105
Total
material
units
required
Bikini
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Board short
270
0
157
5 1785
138
0 600
112
5 600 525
231
0
160
5
165
0
187
5
Towel 900 375 360 120 75 30 60 60 555 480 450 675
Beach Bag 450 255 225 150 45 45 60 60 330 285 270 315
Less:
Beginning
inventory
Bikini
112
5 525 675 425 50 275 175 50 925 575 600
Board short 900 525 595 460 200 375 200 175 770 535 550
Towel 300 125 120 40 25 10 20 20 185 160 150
Beach Bag 150 85 75 50 15 15 20 20 110 95 90
Material
units to be
purchased
Bikini
337
5 450 1500 600
-
275 775 250 -25
272
5 800
122
5
187
5
Board short
270
0 675 1260 785 140 925 225 325
213
5 835
111
5
132
5
Towel 900 75 235 0 35 5 50 40 535 295 290 525
Beach Bag 450 105 140 75 -5 30 45 40 310 175 175 225
Material cost
Fabric
Bikini 632
81.2
5
843
7.5
28125 112
50
-
515
6.2
145
31.2
5
468
7.5
-
468
.75
510
93.7
5
150
00
229
68.7
5
351
56.2
5
38

Strategic Financial Management
5
Board short
843
75
210
93.7
5 39375
245
31.2
5
437
5
289
06.2
5
703
1.2
5
101
56.
25
667
18.7
5
260
93.7
5
348
43.7
5
414
06.2
5
Towel
236
25
196
8.75
6168.
75 0
918
.75
131.
25
131
2.5
105
0
140
43.7
5
774
3.75
761
2.5
137
81.2
5
Beach Bag
112
50
262
5 3500
187
5
-
125 750
112
5
100
0
775
0
437
5
437
5
562
5
Elastic/Trim
Bikini
455
62.5
607
5 20250
810
0
-
371
2.5
104
62.5
337
5
-
337
.5
367
87.5
108
00
165
37.5
253
12.5
Board short
810
0
202
5 3780
235
5 420
277
5 675 975
640
5
250
5
334
5
397
5
Towel
472
5
393.
75
1233.
75 0
183
.75
26.2
5
262
.5 210
280
8.75
154
8.75
152
2.5
275
6.25
Beach Bag 675
157.
5 210
112.
5 -7.5 45
67.
5 60 465
262.
5
262.
5
337.
5
Total cost of
direct
material
241
593.
75
427
76.2
5
10264
2.5
482
23.7
5
-
310
3.7
5
576
27.5
185
36.
25
126
45
186
072.
5
683
28.7
5
914
67.5
128
350
Cash
Purchase
724
78.1
25
128
32.8
75
30792
.75
144
67.1
25
-
931
.12
5
172
88.2
5
556
0.8
75
379
3.5
558
21.7
5
204
98.6
25
274
40.2
5
385
05
169
115.
625
29943
.375
718
49.7
5
337
56.
625
-
217
2.62
5
403
39.
25
129
75.
375
885
1.5
130
250.
75
478
30.1
25
640
27.2
5
724
78.1
25
181
948.
5
60736
.125
863
16.8
75
328
25.
5
151
15.6
25
459
00.
125
167
68.
875
646
73.2
5
150
749.
375
752
70.3
75
102
532.
25
Direct Labour budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Budgeted
production
units
Bikini 337 157 2025 127 150 825 525 150 277 172 180 247
39

Strategic Financial Management
5 5 5 5 5 0 5
Board short
270
0
157
5 1785
138
0 600
112
5 600 525
231
0
160
5
165
0
187
5
Towel 900 375 360 120 75 30 60 60 555 480 450 675
Beach Bag 450 255 225 150 45 45 60 60 330 285 270 315
Total Direct
Labour hour
needed
Bikini (1
hour)
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Board short
(.75 hour)
202
5
118
1.25
1338.
75
103
5 450
843.
75 450
393
.75
173
2.5
120
3.75
123
7.5
140
6.25
Towel (.6
hour) 360 150 144 48 30 12 24 24 222 192 180 270
Beach Bag
(.4 hour) 270 153 135 90 27 27 36 36 198 171 162 189
Direct labour
cost per
hour
Bikini
945
00
441
00 56700
357
00
420
0
231
00
147
00
420
0
777
00
483
00
504
00
693
00
Board short
567
00
330
75 37485
289
80
126
00
236
25
126
00
110
25
485
10
337
05
346
50
393
75
Towel
100
80
420
0 4032
134
4 840 336 672 672
621
6
537
6
504
0
756
0
Beach Bag
756
0
428
4 3780
252
0 756 756
100
8
100
8
554
4
478
8
453
6
529
2
Total Labour
cost
168
840
856
59
10199
7
685
44
183
96
478
17
289
80
169
05
137
970
921
69
946
26
121
527
Manufacturing Overhead Budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Units to be
produced
Bikini
337
5
157
5 2025
127
5 150 825 525 150
277
5
172
5
180
0
247
5
Board short
270
0
157
5 1785
138
0 600
112
5 600 525
231
0
160
5
165
0
187
5
Towel 900 375 360 120 75 30 60 60 555 480 450 675
40

Strategic Financial Management
Beach Bag 450 255 225 150 45 45 60 60 330 285 270 315
742
5
378
0 4395
292
5 870
202
5
124
5 795
597
0
409
5
417
0
534
0
Variable
Overhead
cost
Indirect
Material
120
60
611
8.5
7285.
5
489
6
131
4
341
5.5
207
0
120
7.5
985
5
658
3.5
675
9
868
0.5
Indirect
Labour
603
0
305
9.25
3642.
75
244
8 657
170
7.75
103
5
603
.75
492
7.5
329
1.75
337
9.5
434
0.25
Total
Variable
Overhead
cost
180
90
917
7.75
10928
.25
734
4
197
1
512
3.25
310
5
181
1.2
5
147
82.5
987
5.25
101
38.5
130
20.7
5
Fixed
Overhead
cost
Indirect
Material
148
50
756
0 8790
585
0
174
0
405
0
249
0
159
0
119
40
819
0
834
0
106
80
Indirect
Labour
742
5
378
0 4395
292
5 870
202
5
124
5 795
597
0
409
5
417
0
534
0
Utilities 550 550 550 550 550 550 550 550 550 550 550 550
Insurance 200 200 200 200 200 200 200 200 200 200 200 200
Repair
and
maintenance
s 625 625 625 625 625 625 625 625 625 625 625 625
Rent
700
0
700
0 7000
700
0
700
0
700
0
700
0
700
0
700
0
700
0
700
0
700
0
Depreciation 750 750 750 750 750 750 750 750 750 750 750 750
Total fixed
Overhead
cost
314
00
204
65 22310
179
00
117
35
152
00
128
60
115
10
270
35
214
10
216
35
251
45
Total
overhead
cost
494
90
296
42.7
5
33238
.25
252
44
137
06
203
23.2
5
159
65
133
21.
25
418
17.5
312
85.2
5
317
73.5
381
65.7
5
Less:
depreciation 750 750 750 750 750 750 750 750 750 750 750 750
Cash
payment for
overheads
487
40
288
92.7
5
32488
.25
244
94
129
56
195
73.2
5
152
15
125
71.
25
410
67.5
305
35.2
5
310
23.5
374
15.7
5
41

Strategic Financial Management
Monthly operating cost budget
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Expenses:
Utilities 50 50 50 50 50 50 50 50 50 50 50 50
Insurance
600
0
600
0 6000
600
0
600
0
600
0
600
0
600
0
600
0
600
0
600
0
600
0
Administrati
on Staff
Wages
250
0
250
0 2500
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
250
0
General
Office
Expenses
150
0
150
0 1500
150
0
150
0
150
0
150
0
150
0
150
0
150
0
150
0
150
0
Rent
140
0
140
0 1400
140
0
140
0
140
0
140
0
140
0
140
0
140
0
140
0
140
0
Total
monthly cost
budget
114
50
114
50 11450
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
Inventory Budget for the finished goods
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Bikini
225
0
105
0 1350 850 100 550 350 100
185
0
115
0
120
0
165
0
Board short
180
0
105
0 1190 920 400 750 400 350
154
0
107
0
110
0
125
0
Towel 600 250 240 80 50 20 40 40 370 320 300 450
Beach Bag 300 170 150 100 30 30 40 40 220 190 180 210
Desired
inventory
level for
finished
goods
Bikini
112
5 525 675 425 50 275 175 50 925 575 600 825
Board short 900 525 595 460 200 375 200 175 770 535 550 625
Towel 300 125 120 40 25 10 20 20 185 160 150 225
42

Strategic Financial Management
Beach Bag 150 85 75 50 15 15 20 20 110 95 90 105
Total
inventory
247
5
126
0 1465 975 290 675 415 265
199
0
136
5
139
0
178
0
Cost of sales budget
Sales Units
Jan-
18
Feb-
18
Mar-
18
Apr-
18
Ma
y-
18
Jun-
18
Jul-
18
Aug
-18
Sep-
18
Oct-
18
Nov
-18
Dec-
18
Bikini
150
0
120
0 1300
100
0 400 500 400 200
130
0
120
0
120
0
150
0
Board short
120
0
110
0 1160
100
0 600 700 500 400
116
0
110
0
110
0
120
0
Towel 400 300 260 140 80 40 40 40 260 300 300 400
Beach Bag 200 180 160 120 60 40 40 40 160 180 180 200
Selling unit
Bikini 100 100 100 100 100 100 100 100 100 100 100 100
Board short 75 75 75 75 75 75 75 75 75 75 75 75
Towel 45 45 45 45 45 45 45 45 45 45 45 45
Beach Bag 65 65 65 65 65 65 65 65 65 65 65 65
Sales
Revenue
Bikini
$
1,50
,000
$
1,20
,000
$
1,30,0
00
$
1,00
,000
$
40,
000
$
50,0
00
$
40,
000
$
20,
000
$
1,30
,000
$
1,20
,000
$
1,20
,000
$
1,50
,000
Board short
$
90,0
00
$
82,5
00
$
87,00
0
$
75,0
00
$
45,
000
$
52,5
00
$
37,
500
$
30,
000
$
87,0
00
$
82,5
00
$
82,5
00
$
90,0
00
Towel
$
18,0
00
$
13,5
00
$
11,70
0
$
6,30
0
$
3,6
00
$
1,80
0
$
1,8
00
$
1,8
00
$
11,7
00
$
13,5
00
$
13,5
00
$
18,0
00
Beach Bag
$
13,0
00
$
11,7
00
$
10,40
0
$
7,80
0
$
3,9
00
$
2,60
0
$
2,6
00
$
2,6
00
$
10,4
00
$
11,7
00
$
11,7
00
$
13,0
00
cost of sales
$
4,70
,624
$
1,68
,778
$
2,48,5
78
$
1,52
,712
$
39,
698
$
1,36
,468
$
74,
181
$
53,
571
$
3,76
,560
$
2,02
,483
$
2,28
,567
$
2,98
,743
Monthly cash budget
Beginning 48,2 - - 21,8 77, 1,51 1,8 1,8 2,05 1,63 1,56 2,17
43

Strategic Financial Management
cash balance 50
36,4
58
53,84
8 40 955 ,968
0,5
32
7,2
67 ,852 ,731 ,627 ,498
ADD:
Budgeted
cash receipts
216
800
290
560
28236
0
246
920
149
640
122
520
108
280
762
80
213
040
277
800
273
240
307
880
Total cash
available
2,65
,050
2,54
,102
2,28,5
12
2,68
,760
2,2
7,5
95
2,74
,488
2,8
8,8
12
2,6
3,5
47
4,18
,892
4,41
,531
4,29
,867
5,25
,378
Less: cash
disbursemen
t
Direct
Material
724
78.1
25
181
948.
5
60736
.125
863
16.8
75
328
25.
5
151
15.6
25
459
00.
125
167
68.
875
646
73.2
5
150
749.
375
752
70.3
75
102
532.
25
Direct
Labour
168
840
856
59
10199
7
685
44
183
96
478
17
289
80
169
05
137
970
921
69
946
26
121
527
Overhead
487
40
288
92.7
5
32488
.25
244
94
129
56
195
73.2
5
152
15
125
71.
25
410
67.5
305
35.2
5
310
23.5
374
15.7
5
Operating
cost
114
50
114
50 11450
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
114
50
Total
disbursemen
t
301
508.
125
307
950.
25
20667
1.375
190
804.
875
756
27.
5
939
55.8
75
101
545
.12
5
576
95.
125
255
160.
75
284
903.
625
212
369.
875
272
925
Cash surplus
-
36,4
58
-
53,8
48
21,84
0
77,9
55
1,5
1,9
68
1,80
,532
1,8
7,2
67
2,0
5,8
52
1,63
,731
1,56
,627
2,17
,498
2,52
,453
Budgeted
ending cash
inventory
-
36,4
58
-
53,8
48
21,84
0
77,9
55
1,5
1,9
68
1,80
,532
1,8
7,2
67
2,0
5,8
52
1,63
,731
1,56
,627
2,17
,498
2,52
,453
Income statement Contribution margin per unit
For the year ended
31st Dec 2018
Biki
ni
Boa
rd
sho
rt
Tow
el
Bea
ch
Bag
Sales
price
$
100.
00
$
75.
00
$
45.0
0
$
65.
00
Operating
Revenue
Less:
variab
le cost
$
32.2
5
$
34.
25
$
31.5
0
$
26.
50
Net Sales $
22,2
44

Strategic Financial Management
8,10
0
Less:
Contri
butio
n
margi
n
$
67.7
5
$
40.
75
$
13.5
0
$
38.
50
Budgeted
cost of
merchandise
sold
$
19,7
8,59
0
Gross profit
on
operations
$
2,49
,510
Less:
Operating
Expenses
481
372.
5
Income from
operations
$
-
2,31
,863
Ney income
$
-
2,31
,863
As Reported Annual Income Statement
Report Date 12/31/2016 12/31/2015 12/31/2014
Scale Millions Millions Millions
Total Sales revenues 149558 144077 146917
Automotive cost of sales 124041 123516 125234
Gross Profit 25517 20561 21683
Operating Expense
Selling, administrative & other expenses 14999 14117 13176
Operating Income 10518 6444 8507
Other income
Automotive interest income & other income net 1188 76 974
Financial services other income, net 372 348 348
Equity in net income of affiliated companies 1818 1275 1069
45

Strategic Financial Management
Other Expense
Financial Services interest expense 2454 2699 2860
Financial services provision for credit & insurance
losses 417 305 208
Automotive interest expense 773 797 829
Income (loss) before income taxes 10252 4342 7001
Provision for (benefit from) income taxes 2881 1156 -147
Net income 7371 3186 7148
income (loss) attributable to noncontrolling interests 2 1 7
Net income (loss) attributable to Ford Motor
Company 7373 3187 7155
Ford Motor Co. (DE) (NYS: F)
2016 2015 2014 2013
As Reported Annual Balance Sheet
Scale Millions Millions Millions Millions
Cash & cash equivalents
14,2
72
10,75
7
14,46
8
15,65
9
Marketable securities
20,9
04
20,39
3
22,10
0
20,28
4
Receivables
1,01,9
75
92,81
9
87,30
9
82,33
8
Inventories
8,3
19
7,8
66
7,7
08
7,3
62
Equity in net assets of affiliated companies
3,2
24
3,3
57
3,6
79
3,2
46
Total Current Assets
1,48,69
4
1,35,19
2
1,35,26
4
1,28,88
9
Net property
30,1
63
30,12
6
27,61
6
24,94
2
Net investment in operating leases
27,0
93
23,21
7
19,98
4
16,45
1
Deferred income taxes
11,5
09
13,63
9
13,31
5
15,18
5
Net intangible assets - - - 87
Other assets
7,4
66
6,3
53
5,8
47
5,0
00
Total assets
2,24,92
5
2,08,52
7
2,02,02
6
1,90,55
4
Payables 20,2 20,03 19,53 19,30
46

Strategic Financial Management
72 5 1 8
Other liabilities & deferred revenue
42,5
46
43,57
7
40,46
2
49,40
7
Total automotive sector debt payable within one year
1,77
9 2,501 1,257 1,386
Total financial services sector short-term debt
12,12
3
11,13
8
14,99
4
17,74
5
Total Current Liabilities
76,72
0
77,25
1
76,24
4
87,84
6
Total automotive sector long-term debt payable after one
year
11,06
0
11,32
3
14,42
6
12,87
0
Total financial services sector long-term debt
1,07,89
2
94,20
9
84,01
1
73,05
7
Deferred income taxes
5
02
57
0
59
8
47
0
Total liabilities
1,96,17
4
1,83,35
3
1,75,27
9
1,74,24
3
Stockholders' Equity
Redeemable noncontrolling interest 94
34
2
33
1
32
2
Common stock
4
1 40 40 40
Capital in excess of par value of stock
21,4
21
21,08
9
21,42
2
20,97
6
Retained earnings (accumulated deficit)
14,4
14
24,55
6
23,65
8
18,07
7
Accumulated other comprehensive income (loss)
(6,25
7)
(20,03
2)
(18,23
1)
(22,85
4)
Treasury stock
9
77
84
8
50
6
29
2
Equity (deficit) attributable to noncontrolling interests 15 27 33 42
Total equity (deficit)
28,75
1
25,17
4
26,74
7
16,31
1
As Reported Annual Cash Flow
Report Date 12/31/
2016
12/31/
2015
12/31/
2014
Net income (loss) attributable to Ford Motor Company - automotive - - 5755
Depreciation & tooling amortization - automotive - - 4064
Other amortization - automotive - - 110
Provision for credit & insurance losses - automotive - - 2
Net loss (gain) on extinguishment of debt - automotive - - 18
Net loss (gain) on investment securities - automotive - - -190
Loss on retiree lump-sum settlements - automotive - - 594
Dividends in excess of equity investment earnings - automotive - - -529
47

Strategic Financial Management
Foreign currency adjustments - automotive - - 227
Net loss (gain) on sale of businesses - automotive - - -
Loss (gain) on changes in investments in affiliates - automotive - - 113
Stock compensation - automotive - - 152
Provision for (benefit from) deferred income taxes - - -494
Provision for deferred income taxes - automotive - - -
Intersector receivables/payables - automotive - - -136
Accounts receivable & other assets - automotive - - -1401
Inventory - automotive - - -572
Accounts payable & accrued & other liabilities - automotive - - -1332
Other operating activities - automotive - - 1357
Net cash flows from operating activities - automotive - - 7738
Net income (loss) attributable to Ford Motor Company - financial
services - - 1400
Depreciation & tooling amortization - financial services - - 2440
Other amortization - financial services - - -158
Provision for credit & insurance losses - financial services - - 208
Net loss (gain) on extinguishment of debt - financial services - - 1
Net loss (gain) on investment securities - financial services - - -
Foreign currency adjustments - financial services - - 1
Net loss (gain) on sale of businesses - financial services - - -
Stock compensation - financial services - - 7
Provision for deferred income taxes - financial services - - -367
Intersector receivables/payables - financial services - - 136
Accounts receivable & other assets - financial services - - -568
Accounts payable & other liabilities - financial services - - 737
Other operating activities - financial services - - -485
Net cash flows from operating activities - financial services - - 3352
Total sector cash flows from operating activities - - 11090
Reclassifications from investing to operating cash flows: wholesale
receivables - - -2971
Reclassifications from investing to operating cash flows: finance
receivables - - -
Reclassifications from investing to operating cash flows: other
receivables - - -73
Reclassifications from investing to operating cash flows: payments of
interest supplements & residual support - - 2398
Net income 7371 3186 -
Depreciation & tooling amortization 7993 7385 -
Other amortization -27 38 -
Provision for credit & insurance losses 418 305 -
Pension & OPEB expense 511 1249 -
Equity investment losses (earnings) in excess of dividends received -333 189 -
Foreign currency adjustments 710 825 -
48

Strategic Financial Management
Net loss (gain) on changes in investments in affiliates -42 798 -
Stock compensation 199 180 -
Net change in wholesale & other receivables -5090 -2208 -
Provision for deferred income taxes 2120 1063 -
Accounts receivable & other assets -3563 -2897 -
Inventory -1155 -875 -
Accounts payable & accrued & other liabilities 7758 5734 -
Other cash flow from operating activs -700 -465 -
Net cash flows from operating activities 16170 14507 10444
Capital spending -7196 -7463 -6597
Acquisitions of finance receivables & operating leases -57217 -51673 -45822
Collections of finance receivables & operating leases 38130 36497 33966
Purchase of marketable securities -41279 -48694 -
Sale & maturities of marketable securities 40766 50264 -
Change related to Venezuelan operations - -477 -
Purchases of securities - -
-
11999
3
Sales & maturities of securities - -
11824
7
Cash change due to initial consolidation of businesses - - 9
Proceeds from sale of business - - -
Settlements of derivatives 134 281 -217
Proceeds from sales of retail finance receivables - - 495
Elimination of cash balances upon disposition of discontinued/held-
for-sale operations - - -
Other investing activities 500 141 181
Net cash flows from investing activities -26162 -21124 -19731
Cash dividends -2380 -1952 -1574
Purchases of common stock -129 -1964 -213
Net changes in short-term debt 1646 -3870 -2927
Proceeds from issuance of other debt 48860 40043 40543
Principal payments on other debt -33358 -28859 -27953
Other financing activities -317 25 257
Net cash flows from financing activities 14322 3423 8133
Effect of exchange rate changes on cash & cash equivalents -815 -517 -37
Net increase (decrease) in cash & cash equivalents 3515 -3711 -1191
Cash & cash equivalents at beginning of year 10757 14468 15659
Cash & cash equivalents at end of year 14272 10757 14468
Cash paid for interest expense 3093 3474 3501
Cash paid (refunded) for income taxes 585 467 538
49

Strategic Financial Management
Financial Data
Description Ford Motors (M)
2016 2015 2014
Revenue 1,49,558 1,44,077 1,46,917
Cost of goods sold 1,24,041 1,23,516 1,25,234
Gross profit 25,517 20,561 21,683
Operating profit 10,518 6,444 8,507
Net profit 7,371 3,186 7,148
Inventory 8,319 7,866 7,708
Current assets 1,48,694 1,35,192 1,35,264
Receivables 1,01,975 92,819 87,309
Current liabilities 76,720 77,251 76,244
Payables 1,779 2,501 1,257
Equity 28,751 25,174 26,747
Total liabilities 1,96,174 1,83,353 1,75,279
Total assets 2,24,925 2,08,527 2,02,026
Description Formula Ford Motors
2016 2015 2014
Profitability
Net margin Net profit/revenues 4.93% 2.21% 4.87%
Return on equity Net profit/Equity 25.64% 12.66% 26.72%
Liquidity
Current ratio
Current
assets/current
liabilities 1.94 1.75 1.77
Quick Ratio
Current assets-
Inventory/current
liabilities 1.83 1.65 1.67
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Strategic Financial Management
Efficiency
Receivables
collection period
Receivables/ Total
sales*365 248.87 235.14 216.91
Payables collection
period
Payables/ Cost of
sales*365 5.23 7.39 3.66
Asset turnover ratio
Total sales/ Total
assets 0.66 0.69 0.73
Solvency
Debt to Equity Ratio Debt/ Equity 6.82 7.28 6.55
Debt to assets Debt/ Total assets 0.87 0.88 0.87
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