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Unit 15 Financial Management Assignment sample

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Introduction Of Financial Management Assignment

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The report consists of a new business and the environment is also not seen as very promising and the client wants proper financial decisions and opinions. The client wants to sustain the business from a long term perspective and wants to appoint an experienced person to analyze its financial data and entries. He is also trying to analyze the short term goals of the organization and also the client is looking for a logical answer to its questions and problems later in this report. It has also shown the ratios which are of utmost importance for a business to grow in future.

A. Sustainability and its importance

Sustainability is a broad concept and is a term that is used to meet our needs without disturbing the needs of the future generation. In other terms, it can be said that it is the ability which one has to maintain him/her or the way business looks itself in the future ahead. It also ensures proper maintenance of balance between the ecological, Financial, Social demands so that there is not any depletion of natural resources. Here, in this case, some aspects can be taken into account in respect of sustainability such as:

  • The market research is of due importance in this case as the person is trying to set up a new business
  • The goals should be set from the starting only
  • The targeted population should also be set before the set up of the business
  • A proper understanding of the environment is also necessary for the enterprise
  • Thorough knowledge of the competitors is the foremost thing which should be taken into consideration which leads to sustainability in the future
  • A business must think of the larger and the longer perspective only and not for a short duration of time.
  • One of the main thing it should also focus on the social responsibilities because now it is going to use the natural resources
  • Various known companies have taken various initiatives to reduce waste, by that to the enterprise can take a benchmark to work and then perform its actions in the future
  • Consulting firms always need to understand the needs of the consumers and then provide solutions to the clients

Before setting up this business it should also think about the competitive advantage gap which will lead to the increased profitability and sustainability.( Schaltegger and Wagner ,2017).

B. Investment Decision consideration

There are certain things that the client needs to consider financially in making this investment decision(Virlics, 2013). It is of due importance because by that the profit and the revenue cannot be determined and the business which faces a lot of challenges and problem in the future to grow and move ahead. Some major decisions are discussed below, which are:

  • The foremost thing which a client should think about is the amount of money he/she is going to invest in the business
  • The amount of capital is to be divided in what ratio of the amount of debt and equity
  • How many employees the client needs in the future because the number will directly affect the cost and determine the profit
  • Another thing which a client should see is the contingency reserve because the business is new and the market conditions are also not too good so he should reserve for the unseen situations
  • A proper blueprint should be made for the allocation of funds such as for the production of the goods etc
  • A place that is of due importance should also be thought of by the client because that will majorly affect the finances if that property is on lease.

C. Short Term Goals

The short-term goals of this start-up in terms of financial management are:

  • First, an enterprise should have an emergency fund because it is a new startup, and everything is uncertain
  • It should have a proper fund for minor and major expenses because by that there is no burden on the business thereafter
  • The business should think that it should have the minimum amount of financial liabilities because by that the startup will not have a burden in the future
  • The company should try to manage the internal capital market which is fluctuating day by day.
  • The financial goals such as managing the profit, revenue, sales should also be monitored by the analyst which is the sole purpose and aim of the enterprise i.e. Profitability
  • It should try to minimize the cost of capital in the short term only
  • It should try to maximization the solvency of the business or the enterprise
  • Apart from this, it should also try to maximize the liquidity amount which is helpful in maintain the profit margin and increase in the amount of revenue.
  • It also needs some fund for advertising as it is a new one. So, it should target those fund in major profitability( Eccles et al, 2010).

D. Selling the products

Since the client is in the manufacturing business, yes I think he/she should make the products to be sold to the retailers and not the consumers because it will take necessary steps to make it more convincing to the retailers to buy it. It tries to make modifications in the product according to the need of the retailers which are in direct contact with the consumers or the customers. The manufacturing business tries to make a whole or a larger lot which can be up to the expectations and maybe not, so somehow the manufacturer is trying to sell its products to the retailers and earn profit. The distributors or the retailers are in contact with the manufacturers and they purchase from them, so he should try to clear or sell the maximum amount of products he has. Apart from this, it should also think about the alternatives that what the profit margin is if he is in direct contact with the consumers eliminating the middlemen. This is also helping the manufacturers the cost reduction and increased profit with the help of the internet these days. The consumers are also getting inclined over the online shopping so the manufacturers can mark their products their also by reducing retailers (Jones et al, 2016) 

E. Person drafting Budget

Yes, the client has been preparing the budget for his new startup and a financial analyst can help in preparing the budget for the same because he is that person who has a piece of particular knowledge about this and the expertise he holds from years is also great. Generally, the Chief Financial Officer is the go-to person here always because he is the one who handles the budget-making process (Reilly and Brown, 2011). He bears the responsibility of drafting a sound and clear budget analyzing all the aspects and trying to allocate the money in every field resulting in major profitability in the future ahead. He is the person who is responsible for a sound budget allocation because it will certainly determine the areas of spending and the areas where the business can reduce its spending to grow initially. He also helps in continuously tracking the areas of spending and receiving the money which will help in making the goals accordingly and then making changes too. The departmental managers or some senior officers also sometimes get involved in the budget-making in the case if the business has not sufficient funds to hire a well-experienced person when compared to these persons (Habib and Hossain, 2013).

F. Gathering Financial Data

The gathering of financial data plays a vital role in the organisation, which plays various roles also. It should be gathered from various sources such as journals, magazines, Annual Report and various other sources. The financial data must include all the Tax reports, Balance sheet, and Income statement of all the other type of manufacturing companies which will give a fair idea as to work in the future. He should make a budget or a financial plan which will include bill receivables, bills payables, cash flow statement so that it can determine the amount received and spend. It will also keep track of the various operating incomes so that it can maximise revenues. The financial data from various departments should also be tracked, monitored and collected so that the business gets a fair idea about the profitability of the enterprise as a whole(Liao,2020).

G. Important Costs

Costs are the foremost thing that cannot be ignored when it comes down to the long term view of the business. These costs are incurred by the business from the day of commencement only. Some costs are fixed in nature and some are variable. The costs which are fixed cannot be reduced or eliminated but yes which are variable can be reduced up to some extent such as the cost of registering the business is the one time cost and is not beard by the company later on. Some costs such as equipment costs, professional membership costs, one-time major advertisement costs are one-time costs that are also not borne by the business in the future months. The costs such as area upon which the business will run are also the major cost which will also not be there after the commencement. The costs certainly are more in the initial months such as the raw material, the office supplies, the wages, etc because the owner is new in this and certainly need some time to find alternatives for the raw material supplied to reduce the costs. So, these are those costs that are decreased up to a great level after some months have passed by(Kocakulah et al, 2016).

H. Profitability Ratios

Certain profitability ratios can be used to assess the profitability of the business and help in the growth of the business. The main ratios such as Current ratio, Quick ratio, EPS and many others. These ratios tell the financial performance and determine the profitability also. The main ratio that determines the profit of a business is Gross Profit Margin and Net Profit Margin which tells how the enterprise is running. The ratios are always calculated for financial analysis so that it becomes easy to grow and expand in the future. The ratio also shows the tax amount which the company needs to pay before determining the net profit and how much it should earn to differentiate itself from others(Rutkowska, 2015). Every time a company is preparing the books of account it needs to maintain the profitability ratio of the enterprise so that a lot of investors find potential in the company.

I. Options available for investment-NPV

No, the person should think of investing the money by himself only and not propose the idea to the investors to invest in the startup proposal but rather he should think that once it stabilizes then he should go for the more investors to invest in. Yes, the Net Present Value is more acceptable and reliable in this startup because it will show that cash flows are more than the initial value and it will also let us determine the Internal Rate of Return also which will tell the cash flows too. It is also known that the amount of money a business holds in the present scenario has more worth than the same money it holds in the future. The firm or the business can also think about the discounted rate by which the company can get close to the customers in the first place. It also indicates whether the cash flows are positive or negative and also try to increase the cash flows (Marchioni and Magni, 2018).

Conclusion

This report gives a fair idea as to why financial management advice is necessary for a new business and client to grow and how critically a consultant looks into the matter of the client. It also shows that how the profitability ratio determines the performance in the organization and what all measures it should take under the financial planning officer to increase sustainability and growth in the future ahead. So, it a foremost report for a new start-up and enterprise containing all the factors which are essential to know before going ahead.

REFERENCES

Eccles, R.G. and Krzus, M.P., 2010. Integrated reporting for a sustainable strategy: One Report has the potential to significantly change how companies operate and investors think, shifting the focus from that of meeting short-term financial goals to developing a long-term business strategy that not only commits to corporate social responsibility but also a sustainable society. Financial executive26(2), pp.28-33.

Habib, A. and Hossain, M., 2013. CEO/CFO characteristics and financial reporting quality: A review. Research in Accounting Regulation25(1), pp.88-100.

Jones, P., Hillier, D. and Comfort, D., 2016. The sustainable development goals and business. International Journal of Sales, Retailing and Marketing5(2), pp.38-48.

Kocakulah, M.C., Kelley, A.G., Mitchell, K.M. and Ruggieri, M.P., 2016. Absenteeism problems and costs: causes, effects and cures. International Business & Economics Research Journal (IBER)15(3), pp.89-96.

Liao, Y., 2020, January. Analysis of the Influence of the Quality of Financial Accounting on the Enterprise. In 2019 International Conference on Management Science and Industrial Economy (MSIE 2019). Atlantis Press.

Marchioni, A. and Magni, C.A., 2018. Investment decisions and sensitivity analysis: NPV-consistency of rates of return. European Journal of Operational Research268(1), pp.361-372.

Reilly, F.K. and Brown, K.C., 2011. Investment Analysis and Portfolio Management (Text Only). Cengage Learning.

Rutkowska-Ziarko, A., 2015. The Influence of Profitability Ratios and company size on profitability and investment risk in the capital market. Folia Oeconomica Stetinensia15(1), pp.151-161.

Schaltegger, S. and Wagner, M. eds., 2017. Managing the business case for sustainability: The integration of social, environmental and economic performance. Routledge

Virlics, A., 2013. Investment decision making and risk. Procedia Economics and Finance6, pp.169-177.

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