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All business and organizations should have a plan for their business which should include proper financial management. The main aim of business organizations is to make more profit and expand to have large market coverage. International Clay Products International Company needs to enlarge in market by opening Ashley Studdal Ltd, and this should be done in consideration of many factors like the current operating capital and the capital investment appraisal techniques (Armold, 2007).

Capital investment appraisal techniques  

This project must have a calculation to determine the progress and the success. The determination of the project will use accounting rate of return technique. Accounting rate of return will determine the progress of the business in five years, and if the project will succeed and make ICP to have more branches. This will calculate the return from net income of the capital. The percentage got in this technique shows that the project earns each cent for the percentage got (Shaun, 2005). The proposed profit and loss account for Ashley Studdal Ltd is shown below:-


The figures above include the calculation of accounting rate of return which determines that the company will progress or collapse. The accounting rate of return amount to 7 which shoes the project has high chances of progressing. Other figure in the first paragraph is proposed financial plan for the new project and is a profit and loss account.

£000

Year 1

Year 2

Year 3

Year 4

Year 5

 

 

 

 

 

 

Turnover

840

896

768

568

536

 

 

 

 

 

 

Manufacturing cost of sales

 

 

 

 

 

   Materials

210

224

192

142

134

   Salaries and wages

    172

192

212

202

194

   Depreciation

160

160

160

160

160

 

542

576

564

504

488

 

 

 

 

 

 

Gross profit

288

320

204

64

48

 

 

 

 

 

 

Distribution costs

42

60

88

32

36

Other expenses

40

40

40

40

40

 

82

100

128

72

76

 

 

 

 

 

 

Profit/(Loss) before interest

216

220

76

(8)

(28)

 

 

 

 

 

 

Interest

110

110

110

10

110

 

 

 

 

 

 

Profit/(Loss) after interest

106

110

(34)

(118)

(138)

(A). Accounting rate of return

The technique used in determining the progress of this project is accounting rate of return which showed positive result. The accounting rate of return should be higher and this shows attraction of large profit to the investment. This technique shows that every pound invested in the project returns the percentage acquired after calculating the accounting rate of return. This shows that the total amount invested in the project will multiply by seven for each pound. The project will succeed and have a lot of income in future if all steps followed and the accounting rules and concepts applied. The new business will progress properly and have good outcomes which can make ICP re-open new companies.

The expenditure for each year shows that the company will make great profit at the end, and this will lead to establishment of more business and companies. This company shows positive result and it will enable ICP to have more investment and open more branches to supply clay for the locals and industries around. The calculated turnover from the profit and loss account shows that the business has invested a lot of money which after calculation of the accounting rate of return shows that the amount will multiply by seven. This will bring a great income which will sustain the business for other years after the expiry of five years period.

The gross profit acquired from the profit and loss account calculated is very high, and this shows that the company will bring much interest at the end of five years. This matches with the calculation of accounting rate of return which shows the company can not collapse but it will progress and have large amount of interest after the five years period. The results of accounting rate of return calculations shows that if the company invested a lot of money in the project it could have got much interest in return and open up new branches. The results also shows that with a good management plan the business can make more profit which will enable future growth and establishment of new companies.

Application of this technique helped to calculate income during all years and this brings up appropriate results of the project. Other techniques could not have brought better result since some of them do not look up for the whole process.. The calculation has brought positive results and the project managers will take the activities positively, and this will enable all the operations to be taken with equal consideration, hence it will bring more income.

(b) Courses of action available to the corporate management.

The main goal of corporate mangers and staff managing finance in any business is to minimize the shareholders value, make the business attain more profit and expand by acquiring more market for the product manufactured. This investment is long term, thusmanagers and financial advisers should make sure all the strategies are followed to the end of the project. The company should make sure that the managers of the project have relevant qualification to the position they serve, because establishment of new company in the market needs new skills and techniques in order for it to penetrate into the competitive market. The company should have good relation with partners like bricks brokers, banks to provide financial assistance through loans and other business partners to receive advice concerning the market of bricks in all areas.

The corporate management of ICP should first make capital investment decision. This is a decision which involves budgeting of all projects and investing in projects which brings out positive response. The corporation should calculate the expenditure which  the project requires and whether there will be an appropriate outcome at the end of five years of the project. The management should make decision and propose plans which will ensure little expenditure and much profit. The decisions should be made by group of professionals contracted or internal managers from ICP. The project should be evaluated to estimate the cost and minimize expenses. The corporate management should ensure that there is enough supply of material during the establishment of the new company and that all employees are certified (Shaun, 2005).

The corporate management should ensure the marketing of the new company is done properly by professional marketers in order to rise awareness of the buyers about the company . The bricks should be supplied to target buyers, and this can be done to the fullest by marketing of the products and crising awareness about the new company. The most important thing in business is to make more profit and expand through marketing.Establishment of the new bricks company means that it will increase competition among other manufactures of bricks and they will need more marketing to enable the buyers to trust the new company.

Corporate management should control the working capital to ensue that the business runs without failure because of the materials shortage of or other problems. The company should have good cash management that enables enough capital to make the business each day. There should be enough capital to facilitate the needs and take care of daily expenditures. The company should ensure that the cash flow of the company does not bring interruptions in the operations of the company and avoids instances of failing to work due to lack of money. The company should have enough capital to run daily business, and all the finances of the company should be released when required.

(c)  Recommendations

The corporate management of ICP should follow some rules in order to make the organization to have good income. The corporation should let all people working under Ashley Studdal Ltd work on their own instead of receiving directives from ICP. They should have their own management team with all equipments, and the teams should have qualification just like those at ICP. This will assist in reducing the salary cost as paying the workers at ICP for what they do at ASL will lead to higher wages. The management will not be done appropriately, because the managers at ICP will work hard on their allocated duties at ICP and fail to concentrate on the new duties of the new company. This will lead to collapse of the company because of mismanagement. The management of the company will assist in making sure that the casual workers report about the work results appropriately and they receive salary for their It will ensure that there are no ghost workers in the new company. The management from ICP will make the casual workers have hard time, because they get used to all worker due to  work overload. Casual workers need close supervision; because they get their salary daily or weekly and, when not supervised, they fail to work properly.

The corporate management of ICP should invest more capital into ASL. This will enable ASL to have promising growth even during the times of risk the business will still remain strong. The large amount of capital invested in the company will make the company have large increase of capital in return because the money will have to buy have all the necessary machineries for operation. The investment of large amount of capital in ASL will enable the business to grow faster and have large income which can assist in establishment of other new projects under ICP, and this will lead to high growth of ICP. On the other hand, if not well planed, the money invested can be lost and wasted. In case of risks like fire and other natural disasters, the business can suffer serious losses.  The establishment of any business has negative and positive impacts and ICP should not be based on negativity because only risk takers survive (Armold, 2007).

Conclusion

Management of ASL should be in hands of professionals in order to succeed and achieve the objective of the five years project. Taking inro consideration such things like time, capital and market will assist in expansion of the company. The managers of the company should ensure that the work plan and the budget of five years that was prepared would not change in order to help the company make more capital and open more branches. When the business succeeds the corporate management of ICP should work to extent the project or make it permanent.

Code: Sample20

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