Detailed Analysis of Financial Performance Management Report

This report provides a detailed analysis of financial performance, encompassing various aspects of financial management. It begins with an introduction to finance and its importance for businesses, followed by an in-depth exploration of ratio analysis, including liquidity, solvency, profitability, efficiency, and market ratios. The report then delves into the concept of Return on Capital Employed (ROCE) and its formula, providing examples and analysis of British American Tobacco and Philip Morris International. The importance of operating margin and its comparison with net profit margin are discussed, highlighting its significance in assessing a company's ability to generate profits. Furthermore, the report covers the benefits of budgeting and its role in financial planning and control, along with an overview of different profit margins and their levels. The report also covers the benefits of budgeting and its role in financial planning and control.

Managing
Finance
Performance

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
PART 2............................................................................................................................................6
PART 3............................................................................................................................................9
PART 4..........................................................................................................................................12
CONCLUSION..............................................................................................................................13

INTRODUCTION
Finance is the necessary element for the company’s. This helps companies for running
activities as it manages funds for the company. This will help it’s for managing activities as these
are needs for funds & finance helps for it. The company which has funds for their needs which
helps company for better performance which helps for higher profitability for the businesses. It
includes managing funds through assessing the financial performance which it needs for long
term decisions. Companies are use financial statements which are balance sheet, income
statement etc. These helps company for knowing which resource gives it higher profitability for
its activities. For example, the company purchases assets for running its activities it helps it for
managing funds. Finance is the term for activities which are for management, creation, study for
money & investment. It is for how company managing the needs for funds. It is process for
raising funds for the company’s. Company’s use various financial methods for it which are
financial statements which helps for knowing financial position for helps for ratio analysis.
Companies for investing for the projects it uses investment appraisal techniques which helps it’s
for knowing which project gives it higher profits which helps company for better performance
which helps for higher profitability for the businesses.
PART 1
Ratio analysis: Ratio analysis is a continuous process of gaining a company's understanding,
efficiency, and profitability by studying its financial statements such as balance and revenue
statements. Ratio analysis helps companies for knowing its financial position for the businesses.
Investors and analysts use Ratio analysis to measure the health of companies by examining past
and current financial statements. Comparative data can show how a company is performing over
time and can be used to measure potential performance in the future. This data can also compare
the company's financial position with sector estimates while measuring how a company interacts
with others in the same sector.
Investors can easily use ratio ratings, and all the calculations needed to calculate the ratios are
found in the company's financial statements.
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Estimates of comparison points for companies. They check stocks within the industry. Similarly,
they rate the company today compared to its historical numbers. In many cases, it is important to
understand the dynamics of dynamic driving as executives are more flexible at times, changing
their strategy to make stocks and companies more attractive. Generally, ratios are not used
separately but are combined with other ratios.
1. Liquidity ratio: Liquidity ratios measure the company's ability to pay off its short-term
liabilities as appropriate, using the company's current or immediate assets. Liquidity ratios
include current rate, acceleration rate, and operating cost. It helps company for paying its
short term debts which it needs for current assets. It helps company for knowing how much
assets company needs for the paying its debts which helps for managing financial
performance which helps for the better performance which helps for the higher profitability
for the businesses.
2. Solvency Ratios: It also called financial growth rates, solvency rates compare a company's
debt levels with its assets, equity, and cash flows, to assess whether a company can continue to
move long-term, by paying off its long-term debt and interest on its debt. Examples of solvency
ratios include: debt equity ratios, debt ratios, and interest rate estimates.
3. Profitability ratios: These estimates reflect how a company can generate profits in its
operations. Profit margins, asset returns, equity returns, reimbursements, and total cash
equivalents are all examples of profit estimates.
4. Efficiency Ratios: It also called performance measures, performance measurements assess
how well a company uses its assets and liabilities to generate sales and increase profits.
Significant performance measurements include: profit margin, revenue, and sales dates in the
asset.
5. Integrating ratios: Measurement ratios measure a company's ability to make interest
payments and other obligations related to its liabilities. Examples include interest rate and credit
service rating.
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6. Market ratios: These ratios are most commonly used in basic analysis. It includes dividend
production, P / E rate, per share per share (EPS), and dividend payment rate. Investors use these
metrics to predict future gains and performance.
These ratios help company for knowing its financial position for knowing its liquidity, turnover,
profits which helps for better performance which helps for higher profitability for the businesses.
Reimbursement (ROCE) is a good start for a company. ROCE is a financial measure that
indicates that a company is doing a good job of generating profits in its capital. Companies have
a variety of financial resources that they use to build and grow their businesses. The capital
creates wealth through investment and can include things like corporate security, manufacturing
equipment, land, software, patents and brand names.
How a company chooses to distribute its key assets can directly affect its performance. In many
cases, it could mean the difference between a company that makes a good return or the loss of
money. ROCE is an important tool for measuring this.
While companies use ROCE as a useful metric to measure their performance, they are not the
only ones who can benefit from it. Analysts, shareholders, and prospective investors all use
ROCE as a reliable measure of business performance when analysing an investment company.
ROCE is especially useful when comparing businesses in the same industry. It is better used in
conjunction with other methods than in isolation.
ROCE is one of the many profit scales used to evaluate a company's performance. It is designed
to show the company how well it is using its revenue by looking at the total profit generated in
each dollar. In addition to ROCE, companies may also review other significant return rates when
analysing their performance, such as asset return (ROA), equity return (ROE), and return on
invested capital (ROIC).
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ROCE Formula
The formula used to calculate ROCE is as follows:
\ Start {aligned} & \ text {ROCE} = \ frac {\ text {EBIT}} {\ text {Capital Employed}} \\ & \
text {where:} \\ & \ text {ROCE} = \ text {Return to lease capital} \\ & \ text {EBIT} = \ text
{Earnings before interest and taxes} \\ \ end {aligned}
ROCE =
Capital Employed
EBIT
where:
ROCE = Reimburse for expenses incurred
EBIT = Earnings before interest and taxes
Ratios of British American Tobacco PLC. (Return on Capital Employed and Operating profit
margin)
Particular 2018 2019
Return on Capital Employed 6.45 6.27
Operating profit margin 38.2% 35.1%
Ratios of Philip Morris International. (Return on Capital Employed and Operating profit
margin)
Particular 2018 2019
Return on Capital Employed 13.48 13.40
Operating profit margin 38.3 35
Analysis: From the above table, it is determined that in both years the return on invested capital
was not fluctuated for British American Tobacco, but somehow the operating profit of company
decrease in year 2019 to 5.1% which was earlier 38.2%. This states that in year 2019 the cost of
BAT has been increased and the results was not so much in favour from different operating
activity. On the other side, the return of invested capital was same for Philip Morris international
in both year but the percentage of operating margin had decreased by a significant level. On
making the comparison, it can be clearly observed that the Philip Morris international, return on
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capital invested in different operation and investments are higher than British American
Tobacco. Although the operating profit margin remains same for both firms as they are operating
in same industry, thus most of their operating activities are similar.
You can get a company income before interest and taxes (EBIT) on its income statement. Some
analysts use the full advantage over EBIT to perform calculations. You can calculate the amount
spent from the company's balance.
ROCE is a useful measure of financial efficiency because it measures profit after investing in the
amount of money used to create that level of profitability. Comparing the ROCE with the basic
financial calculation may show the importance of looking at the ROCE.
Operating Margin differs from Net Profit Margin as a measure of a company's ability to be
profitable. The difference is that the first one is based solely on its performance without the
expense of interest rates and taxes.
An example of how this profit metric can be used is the condition of the acquirer that considers
the purchase made. When the acquirer analyses the targeted company, they will be looking at
potential improvements they can make to the operation. An effective profit line provides insight
into how a targeted company operates compared to its peers, in particular, how a company
effectively manages its costs to maximize profits. Leaving interest and taxes are helpful because
a mixed purchase can put a company in a completely new debt, which will make the cost of
historical interest less significant.
The company's operating profit margin shows how well it is managed because operating costs
such as salaries, rent, and equipment leasing are variable costs, rather than fixed costs. The
company may have little control over the direct production costs such as the cost of materials
needed to produce the company's products. However, company executives have a greater
understanding of areas such as how much they prefer to spend on office hiring, services and
operations. Therefore, a company's effective profit margin is often seen as a high indicator of the
strength of a company's management team, compared to a full or complete line of profits.
Profit limit is one of the most widely used profit margins for measuring the level at which a
company or business is making money. It represents what percentage of sales have become
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profitable. Simply put, a percentage figure indicates how many cents a profit a business has
generated per dollar of sales. For example, if an entity reports that it has earned a 35% profit
margin in the last quarter, it means that it has an income of $ 0.35 per dollar of sales made.
There are many types of profit margins. In day-to-day operations, however, it usually refers to
the full profit line, the company's lower line after all other expenses, including tax and one
exception, deducted from revenue.
Businesses and individuals around the world engage in economic activities for profit. However,
whole numbers - such as total sales worth $ X million, $ 1 billion in business costs, or $ Z salary
- fail to provide a clear and realistic picture of the business's profitability and performance.
Various accounting methods are used to calculate the profit (or loss) of a business, making it
easier to evaluate the performance of a business at different times or to compare it with
competitors. These measures are called profit margins.
While affiliated businesses, such as local stores, may calculate profit margins on their preferred
frequency (such as weekly or every two weeks), large businesses including listed companies are
required to report within a reporting period (such as quarterly or annual). Businesses that may be
working on a loan may need to calculate and report it to the lender (such as a bank) on a monthly
basis as part of the normal process.
There are four levels of profit or profit margins: total profit, employment benefit, pre-tax benefit,
and total profit. This is reflected in the company's revenue statement in the following order: The
company takes the sales revenue, and pays the direct cost of the service product. The rest is a
huge limit. It then pays for indirect costs such as company headquarters, advertising, and R&D.
Thereafter it pays interest on the debt and adds or removes any unusual charges or entities
unrelated to the company's principal business by the pre-tax limit remaining. It then pays taxes,
leaving the net limit, also known as revenue, which is the most important factor.
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PART 2
Benefits of Budgeting:
Creating a budget assists managers at all levels in carrying out planned tasks.
(a) Performance levels:
Budgets provide performance standards for various periods and sub-periods, actual performance
can be compared to standards at regular intervals and the opposite adjustments can be made.
(b) Budgets facilitate planning:
Budgets specify the time and amount to be spent by the heads of the various departments and,
therefore, serve as the basis for making accurate and specific plans. Budgets are based on defined
activities that are suitable for testing and change (flexible). Therefore, objectives are achieved
within the defined objectives and thus utilize the use of resources.
It also encourages devolution as budgets limit the work that needs to be done by senior and low-
level managers. Higher level managers can focus on strategic thinking by transferring standard
tasks to lower levels.
(c) Baseline:
When managers at various levels are involved in budgeting, it oversees the various activities of
the organization. Managers of different departments at different levels cooperate and coordinate
their activities in order to make the best use of organizational resources.
Budget control coordinates the activities of the various units to bring it closer to the full goals.
For example, the sales budget should be aligned with the procurement budget which should be in
line with the labor budget. This requires the smooth flow of information between the various
departments that assist in achieving integration.
(d) Motivation and job satisfaction:
Active management participates in the preparation of budgets. This increases their motivation,
job satisfaction and job efficiency.
(e) Facilitator:
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Budgets help to show the future impact on a company's performance. Environmental changes can
be incorporated into organizational policies and procedures.
(f) Facilitating communication:
Budgets provide for horizontal and direct communication in an organization. Plans and
objectives are communicated to the line function and at all levels in the various departments to
assess the impact of departmental actions on organizational performance.
(g) Facilitating the empowerment:
Budgets specify who should spend, when and where and budget areas that can generate
additional revenue. Financial speculation enables senior management to delegate to subordinates
to perform budgeted tasks within budget limits.
Budget Limits:
Budgets are subject to the following limitations:
(a) Overspending:
Sometimes the budget ends. People believe that if they do not spend their money on time, their
future allotment will be reduced. This can lead to the use of areas where it is not required.
In some cases, budget amounts remain unused and, therefore, are used during the expiry of
budget periods to maintain future allocations. This leads to overspending and negatively affects
the effectiveness of the purpose and objectives.
(b) Consistency:
Budgets specify the amount to be spent on various items. If managers do not have the ability to
change the amount allocated to a variety of items depending on the situation, there will be
overuse in some areas and less consumption in others. Managers who restrict their freedom of
use may shift their focus from organizational goals to budgeted activities. This can produce firms
that lead to losses rather than profits.
(c) Guessing for the future:
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Since budgets are based on future forecasts, if events do not turn out as intended, budget
allocations will need to be redistributed. Therefore, uncertainty in the future could affect the
reliability of budgets. However, this does not undermine the value of budgets. Scientific
forecasts can help to make more accurate and reliable forecasts and, thus, increase budget
efficiency.
(d) New barrier to change:
When funds are allocated to different operating budgets, access to additional funding and
resources to take advantage of the environmental opportunity may not be possible and the budget
may, in turn, affect opportunities for innovation and change.
(e) With emphasis on budgeted objectives:
By staying within the bounds of budgeted goals, management can ignore the organisation's goals
and achieve the budgeted goals of the organization.
(f) Based on past results:
While budgets highlight future speculation, the past provides an important basis for budget
preparation. Events that were not important in the past may not be part of future budgets if they
are to be significant in the future. This problem can also be overcome by creating sub-budgets
where key activities are reviewed throughout the budget period that forms part of the budget.
PART 3
Benefits:
1. Best Strategic Planning
Balanced Scorecard provides a powerful framework for building and communicating strategies.
The business model is seen in the Strategy Map which helps managers to consider the
relationship of cause and effect between the various strategic objectives. The process of building
a Strategic Map ensures that agreement is reached for strategic objectives. It means that the
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performance results and key owners or future operational drivers are identified to create a
complete picture of the plan.
2. Communication and Performance Strategic Development
Having a one-page plan image allows companies to easily communicate strategies internally and
externally. We have long known that a picture costs a thousand words. This 'on-page strategy'
helps to understand the strategy and helps to involve external staff and stakeholders in the
delivery and review of the strategy. One thing to keep in mind is that it is difficult for people to
help create a strategy that they do not fully understand.
3. Better Alignment of Designs and Steps
The Balanced Scorecard helps organizations map their projects and programs into a variety of
strategic objectives, ensuring that projects and programs are firmly focused on achieving more
strategic goals.
4. Better Management Information
The Balanced Scorecard approach helps organizations design key performance indicators for
their various strategic objectives. This ensures that companies measure what is really important.
Research shows that companies with a BSC approach tend to report high quality management
information and make better decisions.
5. Improved Performance Reporting
The Balanced Scorecard can be used to guide the design of performance reports and dashboards.
This ensures that management reporting focuses on the most important strategic issues and helps
companies monitor the implementation of their plan.
6. Better organizational coordination
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The Balanced Scorecard enables companies to better align their organizational structure with
strategic objectives. For the system to work effectively, organizations must ensure that all parts
of the business and support services serve the same purpose. Incorporating a Balanced Scorecard
into those units will help achieve that and coordinate strategy and activities.
7. Better Process Alignment
Rated Scorecards are well-used and help align organizational processes such as budgeting,
disaster risk management and analytics with priorities. This will help create a truly strategic
organization.
Disadvantages:
A rated scorecard assesses business performance against a variety of factors. Traditionally,
businesses measure performance by financial results. However, this gives a historical picture
with a single focus. Balance cards are scaled and focused on customer, business processes and
organizational strengths, allowing you to improve future performance based on a wide range of
results. However, rating cards are not perfect and have some disadvantages.
Time and Cost Investment
Rated credit card systems require significant investment. This is a longer-term solution than a
short-term solution. The company must manage its system efficiently and consistently, which
comes with time and financial costs. All employees need to understand how the system works,
which can increase training costs. If you do not have the internal skills, you may need to hire
external consultants to help you use the program and learn how to use it. You may also need to
pay for software purchases.
Stakeholder Acceptance and Use
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All employees must purchase from the card balance sheet in order for it to be effective. This may
be more difficult than you think. If employees do not understand how the system works or
cannot see its benefits, they may not invest in it. Those who are opposed to change may have
difficulty accepting the new system. Even if you gain acceptance, training should empower
employees to use the system effectively. Over time, some employees may become frustrated if
they do not see tangible benefits or if they see scorecards as more pressure on their
responsibilities than a practical tool.
Strategic Direction and Metric Planning
An effective card deck plan is aligned with your strategic objectives, distinguishing itself by
measurable metrics. If you do not plan and interact with these items with your stakeholders, the
system may not produce the results you want. It can be puffy and difficult to manage if you add
too many targets or metrics to the mix. If the controls and standards are inconsistent, they may
not produce the same benefits throughout your business. Focusing too much on metrics can
distract you from your general strategy guide.
Data Collection and Analysis
You may need to train users to understand when and how to measure and analyze data. Rated
rating cards can give you useful information in areas that need improvement, but you should be
able to identify these indicators and use the right strategy yourself. Points for scorecards can be
as good as the basic data you support. If you do not set the correct data steps and do not enter the
correct details invariably, you risk getting negative results. This can motivate you to work in
areas that do not need to be improved and to overlook areas that do.
Lack of external focus
Rated rating cards can give you a wide range of internal focus, but they don’t give you a full
exterior image. As default, they look at your customers but ignore other important performance
indicators, such as competitors or changes in your business environment, for example. This can
lead to over-emphasis on internal functioning and a lack of awareness of external factors that can
also affect your performance.
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PART 4
Discounted cash flow (DCF) is a measurement method used to estimate the value of an
investment in terms of expected future cash flows. DCF analysis is trying to determine the value
of the investment today, based on speculation about how much money it will generate in the
future. This applies to both investments by investors and business owners who want to make
changes in their businesses, such as buying new equipment.
How the Discounted Cash Flow Works:
The purpose of the DCF analysis is to measure the amount of money an investor can earn from
an investment, which is calculated for the amount of time spent. The time value of money
assumes that the dollar today costs more than the dollar tomorrow because it can be invested. As
such, the DCF analysis is appropriate in any situation where a person is currently making
payments in the hope of earning more money in the future.
For example, if you consider the annual interest rate of 5%, $ 1.00 in savings account will cost $
1.05 per year. Similarly, if a $ 1 payment is delayed for a year, its current value is $ .95 because
it cannot be credited to your savings account for interest.
DCF analysis finds the current amount of cash flows expected in the future using the discount
rate. Investors can use the concept of present value to determine whether the future cash flows of
an investment or project are equal to or greater than the value of the initial investment. If the
value calculated by DCF is higher than the current investment cost, the opportunity should be
considered.
In order to perform the DCF analysis, the investor must make estimates for the future.
CONCLUSION
From the above report it has been concluded that . Company’s are use financial
statements which are balance sheet, income statement etc. These helps company for knowing
which resource gives it higher profitability for its activities. For example, the company purchases
assets for running its activities it helps it for managing funds. Finance is the term for activities
which are for management, creation, study for money & investment. It is for how company
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managing the needs for funds which helps for the better performance which helps for the higher
profitability for the businesses.
14

REFERENCES
Books and journals:
Kamchira, L., 2020. EFFECT OF MANAGING FINANCIAL RISK ON THE FINANCIAL PERFORMANCE
OF LISTED BANKS IN KENYA. American Journal of Finance, 5(1), pp.1-15.
Singh, N.P., 2020. Managing environmental uncertainty for improved firm financial performance: the
moderating role of supply chain risk management practices on managerial decision making. International
Journal of Logistics Research and Applications, 23(3), pp.270-290.
Xie, K.L., So, K.K.F. and Wang, W., 2017. Joint effects of management responses and online reviews on
hotel financial performance: A data-analytics approach. International Journal of Hospitality
Management, 62, pp.101-110.
Dimitrov, D., 2020. Financial Performance and Managing Risks. In Software Project Estimation (pp. 77-
94). Apress, Berkeley, CA.
Sotiriadis, M., 2018. Managing Financial Matters. In The Emerald Handbook of Entrepreneurship in
Tourism, Travel and Hospitality. Emerald Publishing Limited.
Nawaz, T. and Haniffa, R., 2017. Determinants of financial performance of Islamic banks: an intellectual
capital perspective. Journal of Islamic Accounting and Business Research.
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