Analysis and Report on Financial Resource Management Strategies

This report provides a comprehensive analysis of financial resource management, focusing on treasury centralization, financial performance, and wealth maximization. Part A discusses the benefits of treasury centralization, such as improved working capital management, control, and risk management, while also addressing potential issues like information access and liquidity. Part B analyzes the financial performance of Toyota, comparing its profitability, liquidity, and leverage to industry averages, and considers the benefits and financial policies for stock exchange listing. Part C examines cost control and sales revenue variances, highlighting the impact of production volume and pricing. Part D explores wealth maximization as a business objective, weighing its advantages and disadvantages, and offers a comparative financial performance analysis of Sydney and Melbourne water services. The report concludes with a role-play scenario offering financial advice to a client, covering cost reduction and capital structure optimization. The report references several academic sources to support its findings.

Running head: MANAGE FINANCIAL RESOURCES
Manage financial resources
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Part A...............................................................................................................................................2
Part B...............................................................................................................................................4
Part C...............................................................................................................................................6
Part A...............................................................................................................................................7
Part B...............................................................................................................................................7
Part C...............................................................................................................................................8
Part D...............................................................................................................................................9
Reference and bibliography...........................................................................................................11

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Part A
Introduction
BHP Ltd that is registered under Australian Stock Exchange is planning to centralize
most of group operation for treasury management to improve the latent capacity, for cost
efficiency and for exploring new application along with reducing the risk. Main objective of the
report is to focus on the benefits of treasury centralization and how to minimize the issues
associated with treasury centralization.
Discussion
With the growth of multinational organizations and expansion of global footprints the
responsibility of treasurer increases and ability of managing the responsibilities become more
difficult. Various benefits of treasury centralization are as follows –
 Economic – it improves the management of working capital through increasing the access
to the cash that results into increased return on the investment for excess cash and
reduction of debt.
 Control – it helps in standardized cash management for all the legal entities and enable in
global compliance with the treasury procedures and policies of headquarter.
 Risk management – it helps is effective management of the FX exposure as well as
managing the interest rate risks through the global oversight (Šarkanová and Krištofík
2018).
Potential issues for subsidiaries that may arise due to treasury centralization are as follows –

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 Identification of risks and cash – it may take long time in constructing global cash or the
risk position while combining the information from different sources. Hence, strategic
decisions shall be made for accessing accurate and timely information before
centralization.
 Access to liquidity and financing – once the global information is generated regarding the
entity’s position the treasury can act on optimizing the liquidity for across the group.
Through establishing the in-house bank for supporting requirements the company can
have access to the liquidity as well as financing.
 Control and operational efficiency – operational efficiency as well as control across all
the subsidiaries shall be scrutinized before implementation of treasury centralization as
until there is proper control on the operational efficiency (Choudhury 2015)
Conclusion
It is hereby concluded that treasury centralization have various benefits like maintaining
visibility of debt, investments, cash and the overall liquidity, managing and monitoring the risk
and executing he business transactions under the financial markets. However, there may involve
some issues while implementing the same those can be taken care of through controlling the
operational efficiency, analyzing the financing and liquidity and identifying the cash and
associated risks.

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Part B
(a) Financial state and performance
Looking into the above table regarding the performance of Toyota as compared to
industry average it can be identified that return before interest and tax on the long term capital
employed for Toyota is remarkably better. Further, the return after tax on equity that determines
the return generated by the entity is 114.81% whereas the industry average for same is only 16%.
Looking into the operating profit on sales it can be identified that the same for Toyota is 13.42%
whereas the industry average is 11%. Both the current ratio and quick ratio those are used for
measuring the entity’s liquidity position is lower for Toyota as compared to industry average.
Further, the company is highly leveraged as its debt to equity ratio is 415% whereas the industry
average is only 24%. Looking into the dividend cover ratio it can be identified that the
company’s dividend cover is significantly higher as compared industry average. However, the
interest cove is lower for the company as against the industry average. Hence, if the overall
performance is considered it can be stated that though the profitability position of the entity is

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better as compared to industry average, its leverage position as well as liquidity position is bad as
compared to industry average.
(b) Consideration for listing under stock exchange
Management of Toyota may consider for stock exchange listing as it can be benefitted in
the following ways after listing –
 It will be able to raise the additional funds through more stock issuance
 In the process of acquiring other entities it can offer securities
 It will get additional leverage while obtaining loans from the financial institutions
(Asker, Farre-Mensa and Ljungqvist 2014)
 It can attract attention of the hedge funds and mutual funds institutional traders and
market makers if it listed in the stock exchange
 Having listed on the stock exchange the company can afford increased credibility with
public and enable it to have endorsed indirectly through trading the stock on the
exchange.
(c) Financial policy advised to adopt after floating under stock exchange (Kulkarni and
Chirputkar 2014)
Financial policies required are as follows –
 Increasing financial threshold for the purpose of listing that is for both asset list and profit
test
 Introducing the minimum requirement for free float
 Making minimum requirements for working capital that is consistent across all the
entities admitted under asset test

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 Changing spread test for better demonstration of sufficient level of the investor’s interest
in the company and the securities for justifying the listing
 Introducing the requirement for companies that is admitted under asset test for providing
audited accounts for last 3 financial years (Hearn 2015)
Part C
a. From the above table it can be identified that actual cost incurred for 8200 units were $72,600
whereas the actual cost should have been $76,000 considering the variable nature of labour cost,
direct material cost and the cost nature of overheads. The material and labour costs were lower
than the budgeted expenses if the increased production is considered. However, it is found that
only the administration overhead is due to poor cost control of the entity and all the other
unfavourable variance is due to the increase in the production units.
b. From the above table it can be identified that the sales revenue should have been $82,000 if
8200 units were sold at $10 per unit. However, the sales revenue generated were $ 81,000 only
hence it is determined that sales price was $81,000/8200 = $9.88 per unit. Hence, the actual
revenue was not satisfactory from sales of 8200 units.

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Part A
Analysis of tunnel project
In the above table, beta is generated from yahoo finance and in absence of information regarding
debt cost of equity is considered as the discount rate.
As the net present value from the project is in negative that is $-193.34, the project shall not be
invested into.
Part B
Introduction
Wealth maximisation is superior for maximization as the major objective of the business
concern is improving wealth or value of shareholders.
(a) Shareholder’s wealth maximization as true objective of an entity
The wealth maximization takes into consideration both risks and time of business concern
and provides the efficient resource allocation. Apart from that it assures the society’s economic
interest. However, on the contrary, wealth maximization creates controversies among ownership
and management and it leads to the perspective idea of business concern that is not suitable for

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the present day business operation. Hence, shareholder’s wealth maximization shall not be the
only true objective of an entity (Sharfman 2014).
(b) Advantages and disadvantages of MD’s suggestion
Advantages –
 Generation of cash flows will enable the entity to meet its short term liquidity which in
turn will improve its solvency
 Profit after tax and return on the investment is important as the investors are mainly
concerned about their investment and return on the same
 Risk-adjusted return is the return on investment as compared to risk associated on
investment. Hence, the investors will be more interested in analysing the risk adjusted
return they will get on their investment.
 Apart from all the above the employees will prefer to work under safe environment,
remuneration they are getting, customer satisfaction and working condition. Hence, these
are important aspect those shall be taken care of.
However, the major disadvantage of taking into consideration the other objective is that
the management may shift its importance to other objective from wealth maximization of
shareholders. The shareholders on the other side are more interested about maximization of their
investment made into the entity (Sharfman 2014). If the management is more concerned about
achieving other objectives it may creates controversies among shareholders and management.
Conclusion

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Hence, apart from focusing on maximizing shareholder’s wealth, other objectives shall
also be cpnsidered.
Part C
(a) Comparative financial performance
From the above tables it can be identified that profit margin from Sydney water service
has been reduced from 40% to 29.03% over the years from 2019 to 2020. On the other hand, the
combined profit from Melbourne water service is 33.33%. Hence, the performance of Melbourne
water service is better.
Part D
Role play –

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Me: Good morning Sir. How are you?
Client: Good Morning. I am fine. How are you and how is work going?
Me: I am good, sir and I am doing fine as well and also enjoying my work.
Client: That’s good to hear. Now let us proceed with business first.
Me: regarding the service contract business I would like to suggest you that you shall try to
minimize the cost of fixed overhead to improve the profitability as it is quite high considering the
number of contracts.
Client: Ok, I will definitely work on it and discuss the same with the management
Me: Next I would like to focus in the gearing as you are planning for raising additional fund for
business expansion.
Client: yes and I am planning to raise the same through equity instead of loan.
Me: As I can see from the balance sheet that the capital structure is comprised of only the equity,
the additional fund shall be raised through debt as interest expense on debt is deductible under
tax. Further, raising through equity will diverge the ownership of the entity.
Client: suggestions provided by you are valid and I will definitely take into consideration while
the matters will be considered.