Financial Analysis: Operational Budgeting for Axiata Group Berhad

This report provides an in-depth financial analysis of Axiata Group Berhad, focusing on its operational budgeting processes. It examines the preparation and analysis of operational budgets, breaking down fixed and variable costs to create an efficient budget. The report explores cost behaviors using various estimation techniques, including managerial judgment, engineering approach, and quantitative analysis, providing justifications for the selected methods. It also analyzes the organization's profitability using activity-based costing statements, highlighting how effective allocation of overhead costs can enhance overall profitability and assist in competitive pricing. Furthermore, the report identifies and analyzes two key decision-making processes: OPEX (Operational Expenditure) and CAPEX (Capital Expenditure) appraisals, explaining their significance in managing the company's assets and investments and their role in long-term financial planning.

Assignment

Table of Contents
Introduction.................................................................................................................................................2
Body............................................................................................................................................................2
Analysis and preparation of operational budgeting processes..................................................................2
Explanation on the cost behaviours using alternative cost estimation techniques and providing reasons
for the selected cost estimation techniques..............................................................................................4
Explanation on the profitability of the organization using activity-based costing statements..................5
Analysis and identification of two types of decision-making processes (OPEX and CAPEX appraisals)
along with providing the reasons for the selection of these respective appraisal techniques....................6
Conclusion...................................................................................................................................................8
References.................................................................................................................................................10
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Introduction
Axiata Group Berhad is determined to be the leading telecommunication group which are present
in the Asian region. The inclusion of the telecommunication services is carried out with the
implementation of vision to make progress in the Next Generation Digitalization processes. The
progress made in this is leading to the development of a strong transformation environment in
the holding entity with the consideration of the portfolio of the pure-play mobile assets. The
implementation of a triple-core strategy is carried out with the inclusion of digital business and
infrastructure processes. As being the leader in the telecommunication industry, it is involved in
providing world-class telecommunication services with the implementation of the most advanced
technologies (Dnb, 2021). As a result of this, the ambition is made to improve the lives in the
operating countries. It also aims to strengthen the accomplishment of this by the integration of
the most advanced technological equipment. The initiation of the group was made in the year
2008 with the support of 40 million customers present worldwide. But currently, the group is
consisting of 150 million subscribers and is known as Asia's largest network holder. The digital
transformations carried out by the group are establishing an opportunity to make changes in the
global environment. It is aiming to become a digital champion by the year 2024 (Axiata, 2021).
The report aims to provide in-depth analysis with the inclusion of the strong preparation and
analysis of the operational budgeting processes. The analysis of the cost behaviours is explained
for the Axiata Group Berhad with the inclusion of alternative cost estimation techniques. The
justification for the selection of the cost estimation technique is used along with analyzing the
profitability of the organization. The identification and analysis of the two types of decision-
making appraisals which are OPEX and CAPEX are aimed to be provided in this report.
Body
Analysis and preparation of operational budgeting processes
The management team of the organization Axiata Group Berhad follows the basic concept of
preparing the operational budget. In this case, the organizational management team is very much
focused on the organizational expenses and revenue during the preparation of the operational
budget. The management team of the entity can be able to break down the fixed costs and
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variable costs. If the management team of Axiata Group Berhad will be able to estimate the fixed
costs and variable costs effectively, then the entity can be able to create an efficient budget. It
cannot be denied that the management team may not easily reduce the fixed costs. But, the
organizational management team can be able to control the variable costs. However, to prepare
an effective budget, the organizational management teams also have to consider the profits. If the
organizational profitability will be higher, then the entity will be able to create a more efficient
operational budget. The operational budget includes crucial aspects of the business and the sales
budget is one of the most significant aspects of the operational budget. In this case, the
management team of Axiata Group Berhad has to be very much focused on the previous sales
performances. Effective evaluation of previous sales budgets can provide clear direction to the
organizational management team. In this case, the management team will be able to create an
effective sales budget. The sales budget process is very much dependent on certain factors such
as pricing policies, profitability and competition. The second significant operational budget is the
production budget. In this case, the organizational management team has to evaluate the target of
sales. According to the target, the management team can allocate a significant budget for
production purposes (TANSKI-PHILLIPS, 2020).
The organizational management team has to be very much focused on the direct labour budget.
The main reason is that the direct labour costs can create a significant impact on the expenses of
Axiata Group Berhad. Moreover, the production or manufacturing process of the products cannot
be possible without considering the direct labour. So, the management team of Axiata Group
Berhad has to maintain the right balance between the direct labour budget and their wages.
Overhead budget can be said as the most crucial part of the operational budget because it
includes fixed and variable overheads. The variable overheads of the organization can vary from
one month to another. On the other hand, the management of the organization has to monitor the
overhead costs very effectively at regular intervals. Through this way, the management team of
Axiata Group Berhad will be able to forecast the probable overhead costs and create an effective
budget. The day-to-day activities of the organization are very much dependent on the operational
budget. If the management will be able to create an efficient budget, then the overall activities of
the entity will be operated very strongly. On the other hand, if Axiata Group Berhad has a very
limited operational budget, then the entity may not be able to operate the business activities
fluently (BambooHR, 2021).
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Explanation on the cost behaviours using alternative cost estimation techniques and
providing reasons for the selected cost estimation techniques
Cost behaviour shows the relationship between a cost and the level of activity. Cost estimation is
a process of determining the cost behaviour of a certain cost item. So, it can be said that there is a
significant relationship existed between cost behaviour and cost estimation. Generally, the cost
behaviour patterns can be of three types such as variable costs, fixed costs and semi-variable
costs. There are many techniques existed that is associated with cost estimation. But, the three
main approaches or techniques of cost estimation are managerial judgment, engineering
judgment, and quantitative analysis. Managerial judgment can be said as one of the significant
techniques that the management team of Axiata Group Berhad can undertake for a better cost
estimation process. In this case, the management team has to use their adequate knowledge to
estimate the costs. This type of technique can be very risky but, effective also. However, the
reliability of the estimation of the costs is very much dependent on the capability and ability of
the management team also. The engineering approach is another cost estimation technique. The
engineering approach is focused on the relationship between the inputs and outputs. This
technique is very much effective but time-consuming. It cannot be denied that a useful cost
estimation technique can create a positive impact on the operational activities of Axiata Group
Berhad. In this case, the entity may take some time to get better results. So, a time-consuming
approach may not create a negative impact on the cost estimation process. Moreover, the
reliability of the technique is better than the managerial judgment technique. If the management
team will face significant challenges to gather valuable data for better cost estimation purposes,
then the engineering approach will be suitable compared to the other techniques (Csus, 2020).
Quantitative analysis can be said as a process through which the management team can be able to
assess the past data to identify the relationship between costs and activities. This approach is
entirely based on the data collection process. Quantitative analysis is a reliable cost estimation
technique. It cannot be denied that the organizational management of Axiata Group Berhad can
be able to estimate the cost very effectively because they have the past data. The cost behaviour
associated with fixed costs cannot be significantly monitored by the organizational management
team. But, the entity can create effective plans to maintain the fixed costs. The management team
of Axiata Group Berhad can control the variable costs because these costs can fluctuate from one
time to another. Moreover, the management team can also monitor the semi-variable costs
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because these costs include both fixed and variable costs. The quantitative analysis method helps
the organizational management team to understand the current and past trends of costs. In this
case, the management team of Axiata Group Berhad can be able to maintain the cost estimation
process very strongly (KENTON, 2020).
Explanation on the profitability of the organization using activity-based costing statements
The activity-based costing approach can be said as a method through which the management of
an organization can be able to assign the overhead and indirect costs very effectively. It cannot
be denied that effective allocation of overhead costs can limit the overall expenses of the
organization. Moreover, the entity will also be able to enhance the overall profitability. It cannot
be denied that the overhead costs of the organization can be effectively monitored by the
management team of Axiata Group Berhad. Expenses have a direct relationship with the profits
because lower expenses can enhance the overall profits and higher expenses can lower the
profits. So, the Activity-based costing approach is very much effective for the organization.
During the preparation of the budget, the entity must consider the indirect cost. The main reason
is that it is not very easy to calculate the costs of entire activities at a glance. For this reason, the
entity has to reserve some amount of money that can be used as indirect costs. Direct costs are
mandatory expenses for the organization. But, indirect costs and variable costs can be monitored
by the management team of the Activity-based costing approach. the organizational management
team must understand the production and manufacturing costs of certain products. So, before
production, the management team has to assign the overhead and indirect costs for each activity.
The management team will be able to assign adequate costs due to the Activity-based costing
approach. Continuous improvement in production efficiency can be possible. Profit can be said
as a measurement through which the performances of the organizations can be measured
(KENTON, 2020).
The management team of the organization can be able to predict accurate profit margins for each
product segment. So, it can be said that the Activity-based costing approach is directly associated
with the profitability of the organization. The activity-based costing approach is a time-
consuming process but it provides accurate information to the management team. If the
organizational management team will be able to get better results, then they have to invest
valuable time. In the modern business era, the competition among the existing companies is
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constantly increasing. One of the most significant issues of competition is associated with pricing
policies. The management team of the organization can understand the profit margin of each
segment of product through an Activity-based costing approach. In this case, the organizational
management team can change the pricing policies of the products to be competitive in the
market. Cost-saving opportunities can be created by the effective implication of the Activity-
based costing approach. This approach is mainly advocating for high usage of information
technology. In the modern era, information technology has been used by most organizations to
get adequate and better results. So, the Activity-based costing approach will be very much
beneficial for the organization regarding profits. Moreover, the organization can also be able to
be competitive in the market by revising the pricing policies of the products (Borad, 2019).
Analysis and identification of two types of decision-making processes (OPEX and CAPEX
appraisals) along with providing the reasons for the selection of these respective appraisal
techniques
CAPEX (Capital Expenditure) is described as the funds that are implemented by the businesses
to acquire, upgrade, and maintain the fixed assets present in the business organization. The
implementation of this process helps the organization to keep track of different properties,
equipments present in the organization. The properties and the equipment include the buildings,
machinery, and office infrastructures. These are implemented with the inclusion of the long term
assets and also can focus on the execution of the office infrastructure. It is establishing a strong
impact with the improvement in the expenses. The generations of the profit related to the
gathering of the future capital expenses are carried out as well as the asset purchasing processes
are made to strengthen the improvement in the productive life of the existing assets. The capital
expenditures that are generally included by the organizations are office buildings, office
equipment, patents, licenses, trademarks, copyrights, and other equipment expenses. These are
required to be maintained by the organization to enhance the building infrastructure along with
improving the productivity of the plants and equipment. As a result of this, it leads to growth in
the activities in the organization (JAMES, 2021).
OPEX (Operational Expenditure) is described as the funds that are implemented by the
businesses for the execution of the daily activities. These expenses are determined to be present
in the form of customary and ordinary expenses which helps to strengthen the operational
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environment of the organization. The tracking down of these expenses is carried out by the
organizations in the income statements. The deduction of these expenses can be carried out from
the taxes that are paid by the organization every year. There are some suitable examples of the
operational expenses that are carried out by the organizations which are the rent, utilities, wages,
accounting fees, legal fees, overhead costs, property taxes, business travel expenses, and the
interest paid on debts. The other expenses are included that are required to be carried out by the
organization for the execution of the operational processes. As a result of this, it enables the
organization to accomplish a strong expense identification environment. The execution of strong
management and planning activities are carried out so that the increase in profitability of the
organization can be made. The reduction of the daily expenses will enable the organization to
increase profitability. The maximization of the outputs can be made by establishing an efficient
working environment. The strengthening of the business operations is carried out with the
measurement of the operational expenses (ROSS, 2021).
The selection of the CAPEX as the decision-making appraisal is made as it enables Axiata Group
to represent the long-term expenses that are required to be carried out by the organization. The
track on the physical assets such as the buildings, equipment, machinery, and vehicles are carried
out by the organization Axiata Group. It enables the organization to improve performance along
with the inclusion of different benefits to the company. The benefits are evident from the tax
reductions that are gained by the company on the fixed assets. This establishes a beneficial
environment to improve the performance of the company. Axiata Group is involved in making
investments in the IT infrastructure present in the organization. This investment made by the
company is considered as the capital expenditure as it establishes a flexible environment in the
telecommunication service provision processes carried out by the organization. The transactions
carried out for the execution of changes provides a strong beneficial environment in the
organizational processes. As a result of this, the strengthening of the structural environment is
made which increases the performance of the organization. With the help of this, Axiata Group
can be easily able to focus on the execution of purchasing of the different components
appropriately with the inclusion of strong capital expenditure processes. The tracking of the
expenses can be carried out by the group in the form of a cash flow statement. It also enables
Axiata Group to focus on the significant bottom line in the upcoming years after the purchasing
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of the assets are made. This establishes a strong flexible environment by removing the capital
investments made by the organization (Dnv, 2021).
The selection of the OPEX as the decision-making appraisal is made for the Axiata Group as it
enables the organization to track the day-to-day operational expenses. The inclusion of the
customary and the ordinary expenses are made by the company with the implementation of the
operational expenses. The organization is focusing on the reporting of the operational expenses
in the income statement so that the expenses can be easily reduced from the taxes that are
required to be paid every year. As a result of this, it establishes a beneficial environment for the
organization and also helps the Axiata Group to remove the additional expenses. The tracking of
the operational expenses enables the organization to focus on the execution of research and
development processes along with including the COGS. The operational expenses are included
normally in the form of the business operation processes along with maximizing the outputs
related to the OPEX. The representation of the core measurement of the efficiency of the
organization over time can be made with the help of tracking the expenses. Thus, Axiata Group
can be easily able to reduce the expenses to make improvements in the operational practices. The
appropriate execution of the management and planning processes enables the Axiata Group to
improve the operational practices appropriately. As a result of this, it leads to an increase in the
futuristic views related to the expenses that are required to be carried out by the organization.
The measurement of the core efficiency of the organization Axiata Group can be made over time
with the implementation of operational expenditure decision-making appraisal. The management
can be easily able to track down the expenses carried out by the company appropriately
(MAJASKI, 2021).
Conclusion
The overall report provides an in-depth analysis with the inclusion of the strong preparation and
analysis of the operational budgeting processes. The information on the chosen organization
Axiata Group Berhad is provided in this report. The analysis of the cost behaviours is explained
for the Axiata Group Berhad with the inclusion of alternative cost estimation techniques. The
justification for the selection of this respective cost estimation technique implemented is
analyzed in this study as a whole. The appropriate analysis of the profitability of the organization
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is carried out with the implementation of strong activity-based costing statements. The
identification and the analysis of the two types of decision-making appraisals are provided in this
report which is OPEX and CAPEX. The operational expenses and the capital expenses are
explained for the organization Axiata Group Berhad. The inclusion of this is carried out with the
implementation of this process as a whole. It not only helps to strengthen the business decision-
making processes but also establishes stability in the operational and management practices
carried out by the organization. The reason for the selection of these two is appraisal techniques
are explained in this study.
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References
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2022].
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KENTON, W., 2020. How Quantitative Analysis (QA) Works. [online] Investopedia. Available
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ROSS, S., 2021. CAPEX vs. OPEX: What's the Difference?. [online] Investopedia. Available at:
<https://www.investopedia.com/ask/answers/112814/whats-difference-between-capital-
expenditures-capex-and-operational-expenditures-opex.asp> [Accessed 11 January 2022].
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%20operations.> [Accessed 11 January 2022].
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