Contents Finance For Managers Finance Essay - Free Essay Example

Finance is very significant for business organisation. Finance comprises planning of financial resources, making of most favourable capital structure and effective consumption of financial capital by  deep analysis of  cost of capital and  capital budgeting  instruments. It is very advance knowledge. Like other technology, it can also enhance the efficiency of business, so effectual utilisation with sensible care is very necessary in Finance. Without this Finance can become hazardous for company. Suppose, if company attains large amount through its network resource but company has not made high-quality financial planning regarding its effectual consumption, then Company can reach at the stage of liquidation, because if Company has not high-quality plan for investment, it will not be able to provide good return to its creditor and investor, after this  creditors  of Company can put it in danger after demanding their finance. So, study of finance and its tool is very significant. The Institute of Certified Management Accountants (ICMA), states A management accountant pertains his or her professional knowledge and ability in the preparation and management of financial and other decision oriented information in such a manner as to assist management in the making of policies and in the development and control of the operation of the responsibility. Management Accountants therefore are viewed as the value-creators between the accountants. They are much more involved in forward looking and taking decisions that will influence the future of the business, than in the historical recording and fulfilment (store keeping) aspects of the profession. (ICMA) For the analysis of various operations within the organisation, different evaluation techniques can be used. The selection of suitable analytical techniques is central in designing effective strategy that will guide to clear insights and proposals that will have an impact on the business. The appropriateness of each type of analysis to a particular study plan is determined by precise objectives and business need. Different techniques comprise perceptual mapping, correspondence mapping, discriminate mapping, conjoint analysis/ choice modelling, unmet needs/ gap analysis, Kano analysis, maximum difference scaling, turf/ coverage analysis/ line optimization, cluster analysis (k-means, latent class, etc), latent class modelling, discriminate analysis and SWOT analysis etc. For this assignment paper, I have selected Coca-Cola Co. (Coke). Coca-Cola is a beverage manufacturing company and has grown many well known brands such as Sprite and Dr. Pepper etc organically or through acquisitions and mergers. Question 1 Sources of Finance Sources of finance are the essential part of an entity as they are obligatory for the operations and growth of the company. A corporation can raise finance through internal or external sources. In this particular assignment I have to discuss the long term source of finance for Coke. The statement of financial position extracts of company for the financial year 2011 are as follow. Disclosures show that these non-current liabilities consist of bank loans and capital leases. Bank Loans A Bank Loan is a sum of money borrowed from the bank and then need to be repaid with interest on or before a set date. Bank loans are engaged out for a fixed period, banks would want some form of safety to certify that the bank loan is rewarded back including interest along with it. A bank loan is usually engaged out for a purpose e.g. borrowing money to commence a new business, providing new apparatus for their company, buying stocks, buying new goods to sell in your company, even buying shares or using the money to spend in the business. This is related to mortgage because with a bank loan you also need to pay back the money together with interest.   Many trade owners who need financial assistance in their business will go to the bank promptly to take out a loan, but most companies that become unsuccessful or insolvent will find it difficult to pay the money back to the bank which had been borrowed and will then be in debt. If the business is then in liability they will have to discover a way to pay back the bank, if they are not capable to pay the debt they will then have to speak to the bank to ask for them to permit the business more time to pay back the money along with the interest. Also with the bank loan many companies will continue trading more equipment or purchase more supplies in order to keep the business running because from time to time a business is made triumphant because of the quantity and quality of the product or equipments required. Advantages The Advantages of this financial technique are that there are wide varieties of conducts to spend the money protected from a bank loan. A bank loan can be available quickly. As soon as the bank loan is secured, the skilled borrower can then complete a bank loan contract. A bank loan can be used in a number of ways; this money can be used for large items such as cars or any other sort of vehicle, furniture, investment etc. A bank loan can offer much needed funds for a borrower. These advantages take a big outcome from the loan. Disadvantages The Disadvantage is that when people use too much money, they get spellbound by their debt. Some loans contain a down payment fine, which restricts the borrower from paying the money off before without incurring additional cost. There are a number of restrictions on the contract e.g. there might me circumstances on the way the money is used. Also one of the difficulties is that there might be a permanent date on which the loan has to be repaid. Borrowing too much money can lead to a bungled cash flow and also payments can even go beyond income in some matters of cases, this is why many loan payments are restricted to a certain percentage of a borrowers income. And another drawback is that you have to return 100% of the money borrowed plus an interest rate. The interest rate depends on how long you need to pay the money back; the longer you take, the higher the interest rate. Leases A lease is an agreement between two parties- one is lessor other is lessee. The lessor owns a capital asset, but allows the lessee to use it. The lessee makes payments under the terms of the lease to the lesser, for a specific period of time. Leasing is, therefore, a form of rental. Leased assets have usually been plant and machinery, cars and commercial vehicles, but might also be computers and office equipments. The business pays a regular amount for a period of time, but the item belongs to the leasing company. Most owners cars are leased to business. The business pays the monthly fees for using the car. According to Geoff Black (2005) (Pg-136), A finance lease means by which companies obtain the right to use assets over a period time. The ownership of asset never passes to the actual users of the assets. Advantages It offers fixed rate financing; you pay at the same rate monthly. Leasing is inflation friendly. As the costs go up over five years, you still pay the same rate as when you began the lease, therefore making your dollar stretch farther. (In addition, the lease is not connected to the success of the business. Therefore, no matter how well the business does, the lease rate never changes.) There is less upfront cash outlay; you do not need to make large cash payments for the purchase of needed equipment. Leasing better utilizes equipment; you lease and pay for equipment only for the time you need it. There is typically an option to buy equipment at end of lease term. You can keep upgrading; as new equipment becomes available you can upgrade to the latest models each time your lease ends. Typically, it is easier to obtain lease financing than  loans  from commercial lenders. Disadvantages Leasing is a preferred means of financing for certain businesses. However it is not for everyone. The type of industry and type of equipment required also need to be considered. Tax implications also need to be compared between leasing and purchasing equipment. You have an obligation to  continue  making payments. Typically, leases may not be terminated before the original term is completed. Therefore, the renter is responsible for paying off the lease. This can pose a major financial problem for the owners of a business experiences a downturn. You have no equity until you decide to purchase the equipment at the end of the lease term, at which point the equipment has depreciated significantly. Although you are not the owner, you are still responsible for maintaining the equipment as specified by the terms of the lease. Failure to do so can prove costly. Ratio Analysis Following are some of the relevant ratios regarding the long term financing of the company Debt to equity 0.90 Debt to capital 0.47 Interest coverage 28.43 The above ratios show that the company is having a very balanced debt to equity ratio which means that currently it is not overly geared. Debt to capital shows the overall coverage of the debt in the company by its Capital. Lastly the interest cover is very large. It means that profit after tax for the company is more than sufficient to pay all the interest charges. There is also an indication that company has a great capability to raise finance through debt. Changes in policy In the past, company was reluctant in using the operating income as the sources of finance as means for investment. This eventually leads to less payment of dividends. Hence the corporate management of the company realised that there are some small shareholders in the company that only want is adequate return and also it is abiding by the corporate governance principles that the company must treat all the shareholders equally so in order to give dividends, company made a policy to use leases and loans from banks as long term sources of financing in case of some adjustment. This lead to satisfactory result as the company is not having any threat of liquidity and it can also easily all the payments and interest charges as the fall due. From Past five years, company has not issued any shares and it is also an indication that company is definitely not having any financial difficulties and if by chance the fall due, gearing of company allows it to raise finance through debt or credit fina ncing. Recommendations At present Coke is a bit reluctant towards the use of debt as the source of it long term financing as company is not having any liquidity issues to pay its suppliers or tax authorities. As the Debt to capital ratio is very low so the company should take use of its superb liquidity position and credit history and make use of borrowings from banks to increase the portfolio of its products. This will lead to an increase in the gearing ratio and decrease in the interest cover ratio but it is acceptable. Another policy that company can undertake is to repurchase its shares in order to improve its EPS by using the long term financing and hence can achieve a best mix of capital and loan quantities in the company. Question 2 Role of Management Accountant Horngren, Sundem and Stratton (2002) state that budgeted goals and performanace are generally a better basis for judging actual results than is past performance (Horngren, Sundem, Stratton, 2002) Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions. In contrast to financial accountancy information, management accounting information is designed and intended for use by managers within the organization, whereas financial accounting information is designed for use by shareholders and creditors. Usually confidential and used by management, instead of publicly reported; forward-looking, instead of historical; Computed by reference to the needs of managers, often using management information systems, instead of by reference to financial accounting standards. This is because of the different emphasis: management accounting information is used within an organization, typically for decision-making. Ideal Role of Management Accountant The role of the management accountant is to perform a series of tasks to ensure their companys financial security, handling essentially all financial matters and thus helping to drive the businesss overall management and strategy. Management accountants are key figures in determining the status and success of a company. Some choose to become a Certified Management Accountant (CMA), a similar credential to  CPA, but with a greater focus on cost accounting, financial planning, and management issues. Job responsibilities can range widely. Depending on the company, your level of experience, the time of year and the type of industry, you could find yourself doing any of the following tasks: Budgeting Handling taxes Managing assets to helping determine compensation and benefits packages Aiding in strategic planning Management accountants are responsible for all or part of a companys financial status, actions and transactions. They coordinate accounting operations, hire, and train and oversee staff. It lies also within the responsibilities of management account to maintain budget and perform financial analysis. Management accounts tend to strengthen the corporate position of the company by build business strategy and improve its image by managing relationships with investors and auditors of the entity. (International, 2012) Consistent with other roles in todays corporation, management accountants have a dual reporting relationship. As a strategic partner and provider of decision based financial and operational information, management accountants are responsible for managing the business team and at the same time having to report relationships and responsibilities to the corporations finance organization. The activities management accountants provide inclusive of forecasting and planning, performing variance analysis, reviewing and monitoring costs inherent in the business are ones that have dual accountability to both finance and the business team. Examples of tasks where accountability may be more meaningful to the business management team vs. the corporate finance department are the development of new product costing,  operations research, business driver metrics, sales management score carding, and client profitability analysis. Conversely, the preparation of certain financial reports, reconciliations of the financial data to source systems, risk and regulatory reporting will be more useful to the corporate finance team as they are charged with aggregating certain financial information from all segments of the corporation. In corporations that derive much of their profits from the information economy, such as banks, publishing houses, telecommunications companies and defence contractors, IT costs are a significant source of uncontrollable spending, which in size is often the greatest corporate cost after total compensation costs and property related costs. A function of management accounting in such organizations is to work closely with the IT department to provide  IT cost transparency. Management is responsible for the preparation and fair presentation of the financial statements included in this annual report. The financial statements have to be prepared in accordance with U.S. generally accepted accounting principles and reflect managements judgments and estimates concerning effects of events and transactions that are accounted for or disclosed. Given the above, one widely held view of the progression of the accounting and finance career path is that financial accounting is a stepping stone to management accounting. Consistent with the notion of value creation, management accountants help drive the success of the business while strict financial accounting is more of a compliance and historical endeavour. Coca-Cola In Coke, management accountant tends to cover a wide and vital corporate role. It is by far key executive position within the company as every kind of reporting and compliance responsibility related to the company is the responsibility of management accountant. From vast description of tasks done by the management accountant within coke, a few of them are listed as follows. Providing Operation Management Reporting on monthly basis cooperation with related Department (TOL, SM, HR and Finance) to be distributed among CCBI Senior Management and CCA Senior Management Prepare debtors and aging report which provide detail Account Receivable collections by Modern and Traditional channel which will be used on FYR forecast Providing comprehensive financial performance analysis that relates to some specific areas such product costing, pricing strategy analysis, net contribution analysis Providing in-depth analysis of financial statement that includes Profit Loss, Balance Sheet and  Cash flow statements and identifying any key financial issues to be underlined Provide Financial Statement for AIST stakeholder meeting Prepare and submit Stock Movement Inventory to Sydney on quarterly basis Responsible for providing financial information requested by other functions Supporting the Annual  Business Plan  and Full Year Review processes especially in product costing system Management accountant is the head of finance department in the company. The finance department of the Coca Cola Company is responsible for  financial record keeping. This involves keeping records of money  received and paid out. The financial records will be used to produce  the annual reports for the shareholders so that they can see the  company performance. The Finance department is also responsible for  the management accounts of the business like marketing etc. The  Coca-Cola Company finance department is also responsible for making  budget of the company and for each department like marketing   department or research and development department. They will also be  involved in the planning process like taking over or any major  decision. Differences I think that these are more than what should be required from the management accountant. He should not be responsible for the detailed findings within the organisation but have to control the overall strategic position of the organisation along with the relevant reporting. There are two important tasks that are neglected in the roles that a management accountant plays in coke. The two tasks are the preparation of sustainability reports and environmental reports. Ideally, reporting on sustainability is integrated into a single integrated report that communicates every aspect of a companys performance. Effective sustainability reporting is a powerful part of communicating with stakeholders about how you are performing against your objectives. Companies that embrace this are likely to have an advantage over their competitors and boost value for shareholders. However, it can be a significant challenge to make your sustainability information and reporting more reliable, efficient and effective for the benefit of both external stakeholders and internal management. Access to information Management accountant in Coke has access to all the management accounting information in the company. Management accounting information is focused at internal managers and decision makers. Its intended use is to provide financial data relevant to a managers operations in an effort to make sound business decisions. Management accounting information comes in the form of financial ratios, budget forecasts, variance analysis and cost accounting. Without management accounting practices, making these decisions would be more like  gambling  and less of a science. Once the forecast models are built, the budget process can begin. The budget process allots capitalmoneyfor the future operations. Estimates of the future costs and liabilities are made. These dollar amounts are constructed from analyzing the past liability and cost trends. Al this budgeting information is accessible by management accountant within Coke. Ratio analysis is completed at the end of each accounting periodmonthly, quarterly and annuallyto determine the companys ability to pay its long- and short-term debts. These rations demonstrate a companys solvency and liquidity. These same ratio analysis tools can be used to determine a companys effective use of inventory and raw material. This analysis tells the management accountant whether the company is operating within the overall guidelines that will promote profitability.   Managerial accountant in Coke than uses all of the accounting data available to make  decisions solid based on trends, facts and projects. These decisions are critical to the future of Coca-Cola Company. Effective managerial accounting takes much of the risk out of decision making and bases it more on fact. However, there is always financial risk in doing business. Analyzing past trends can create a clear  picture of  the future. Question 3 Planning control and decision making In Coke, planning and decision making is very systematic process. Company has to decide about different projects and graphical project planning techniques are used for planning controlling and deciding about different projects. In Coke, projects that involve more than one person and/or more than one step pose the following questions: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ What tasks need to be done to complete the project? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ When and in what order will these tasks be done? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Who will do each task? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ What are the intermediate deadlines (e.g., status reports), and what will be done by these deadlines? To answer these questions, additional issues arise, such as: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ How long will each task take? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ What dependencies exist between tasks? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Who has the knowledge/skill/time to do each task? ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ What external constraints exist (e.g., time to order parts)? The Gantt, PERT, and CPM charts describe the answers to these questions in time oriented diagrams. In all cases, the task is the basic unit of interest. In this context, a task is some significant activity the group will need to perform to accomplish its goals. Note that the group will have goals that include the project itself as well as presentations, reports, proposals, etc. Tasks are given: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ A name/description (typically, verb-noun, as in design control board or research literature) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ An estimate of the amount of calendar time required ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ A list of other tasks (if any) that must be completed before this task can begin (or end)-i.e., dependencies. Other task attributes can be added if desired, such as time required in person-hours and other resources required (e.g., financial, special skills, special equipment). Besides tasks, other information is required, such as: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ The overall project start/end dates ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Other deadlines or milestones (e.g., reports, etc.) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Factors affecting time available (e.g., holidays, breaks, other classes, presentations, etc.) Now the three methods (Gantt, PERT, CPM) will be described. Following that, a cookbook approach to the creation of a Gantt chart will be presented. Gantt The Gantt chart was invented in the early 1900s by Henry L. Gantt, an American engineer and social scientist. The horizontal axis is (linear) time; each task is given its own horizontal band where the calendar duration of the task is indicated by a box, line, or other object with a variable horizontal dimension. Tasks are often grouped into categories, and each category can be treated as a summary task whose duration spans all the tasks within that category. Tasks are generally listed from top to bottom in the order they will occur; if there are groups of tasks, the tasks are chronological (by starting date) within a group, and the groups ordered by starting date. The horizontal axis has a resolution appropriate to the type of tasks; a resolution of one day is useful for most projects. Note that if significant work is not expected to be done on weekends, these should be omitted from the chart, otherwise tasks will have their durations distorted if they straddle days when no work is likely. A vertical line is usually placed on the chart to show the current date. Other important milestones can be noted (and labelled) with dotted vertical lines at the appropriate dates. The advantages of the Gantt chart are: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Time is explicit (and linear) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ All tasks visible in relationship to others ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Deadlines are shown ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Project status at intermediate times is shown ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ can show progress by filling in task boxes The unmodified Gantt chart has the following shortcomings: ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Tasks might not be associated with people (solution: tag tasks with the initials of the people responsible) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Person-hours are not indicated, only calendar time (solution: note person-hours near the task box) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Dependencies are not explicit (solution: imply dependencies by ordering tasks, or use extra lines and arrows) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ No summary of the load on a person (solution: create an additional set of horizontal task lines for each person, showing what tasks they are working on when) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Other resources not shown (e.g., financial) (solution: note resources in description or near task box) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ Critical paths are not explicit (solution: use highlighting or other graphical means to indicate the sequence of tasks along the critical path) ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¢ does not record difference between original plan and actual (solution: enhance the task box to show two different durations-an upper (actual) and lower (estimated)) PERT A few of the shortcomings of the Gantt chart are solved in the PERT chart (Program Evaluation and Review Technique). The PERT chart uses a connected series of nodes to make explicit dependencies between tasks. In addition, the order of tasks is given by the flow of the connections left to right, but the horizontal axis is not necessarily linear in time. The PERT chart can be more compact than the Gantt, but does so at the cost of a linear time scale. The time resources required by a task are given numerically, rather than appearing graphically (i.e., horizontal dimension) as in the Gantt chart; this may make it harder to quickly see what areas are using the most time resources. CPM The CPM (Critical Path Management) chart is similar to the PERT chart but includes an explicit indication of the critical path-that sequence of tasks that defines the minimum amount of time for the project. Put another way, these are the tasks that a delay within will delay the entire project. One or more sequences of such tasks always exist; the CPM chart makes these paths (usually just one) explicit. Otherwise, CPM shares the same strengths and weaknesses as the PERT, and the two are often lumped together as one technique. For complex, time-critical projects, the CPM/PERT charts might be useful in providing a clear indication of the critical sequences of tasks necessary to keep the project on schedule. However, the Gantt chart-especially when augmented by notations to show dependencies-is easier to produce and update, and is a good all-around project planning tool. A Cookbook Approach for the Gantt chart What follows is one way of creating a Gantt chart. 1. List all known milestones, deadlines, and deliverables (papers, presentations, etc.) 2. List all outside constraints on time (holidays, exams, etc.), money, equipment, etc. 3. Create a list of tasks brainstorm a list of as many possible tasks for the project as possible (Brainstorming: In a set amount of time, say 5 minutes, the group lists as many ideas as possible without criticizing them. Some will be useless; the idea here is to get as many different possibilities out as possible. Some might be tasks; others might be general categories of tasks.) Group these brainstormed tasks into categories (e.g., documentation, software, etc.). Some elimination of ideas can be done at this point. review each category and brainstorm additions within the category 4. Because these tasks have been brainstormed, go back and eliminate any tasks that are not significant or relevant. 5. for each task in the list time (in person-hours, then estimate calendar) dependencies (other tasks) resources (money, parts, equipment) (Note-the procurement of parts, equipment, and even expertise/knowledge might be a task in itself.) who will be doing it (perhaps a function of required knowledge/skill, or time) 6. Organize the task groups by starting date (or other logical and consistent criteria), and tasks within groups by starting date Note: You might find it useful to list each task on a small Post-It note so you can create a large scale version before working on the computer. 7. Use Excel or other tool to create the Gantt chart Remember to include only working days on the time axis Significant (and possibly recurring) milestones or deadlines can be shown as tasks (of minimal duration), as vertical lines at the appropriate date, or on the time axis. Provide a table of symbols or any other necessary information to interpret the chart Always show the current date as a vertical line; note the last revision date of the chart as well somewhere on the chart PERT and CPM charts may require either special software or more flexible software like diagramming/paint programs. Choose a chart type and method of creating the chart such that you can easily update the chart for your progress reports and even weekly meetings. Alternative Approach Coke can also make use of Logical Framework Approach (LFA), a highly structured and systematic method of analysing problems and defining objectives (which includes the problem and objective trees, explained in the previous section) and then of selecting and organizing the relevant activities for reaching the objectives, following a strict logical order. For each programme, the LFA should normally result in the production of a Logical Framework Matrix (LFM), also called a Log Frame, which summarizes the programme in a limited number of columns and rows and can be accompanied by more detailed work plans or activity schedules. (Handbook on Planning, 2009)

THEORETICAL FRAMEWORK AND RESEARCH DESIGN - Free Essay Example

Sample details Pages: 11 Words: 3353 Downloads: 9 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? This chapter presents the theoretical framework used to evaluate the financial performance of BRALIRWA and the influence of corporate governance on the firm performance; and the research methodology followed throughout the research basing on the different aspects discussed in literature review. 3.1 INTRODUCTION As discussed in chapter one, the main focus for many companies is to create the best possible value for their owners and to secure excellent financial performance. The sound financial health of a company is one of its major goals and to maintain it, companies at one point of time have to look at the past and current performance to plan for future prospect. The most objective way to evaluate the financial performance of a company is through financial statement analysis. Financial analysis involves the assessment of a firms liquidity, its operating performance, its risk profile and its growth potential using financial ratios. Ratio analysis is an important and powerful analytical tool used for measuring the performance of a business entity (Van et Al., 2003). It helps stakeholders (shareholders, investors, creditors, managers, government etc) to make an evaluation about the profitability and financial soundness of the business entity (Bardia, 2008). Different types of investors ex pect different types of returns, if you are a stockholder, you expect an increase in the value of the stock you hold; if you have invested in a company with a history of paying dividends, you also expect a dividend; if you have loaned the firm money, you expect to receive interest and the return of loan principal. Although the types of returns they expect are different, equity investors and creditors both risk not receiving those returns. Therefore, both stockholders and creditors use financial statement analysis to predict their expected returns and assess the risks associated with those returns (Hongren, Sundem, Elliot and Philbrick, 2003). Analysis of financial performance allows comparison of practice performance from one year to the next, benchmarking of a practice against industry standards, and preparation of financial information for lending institutions or directors (Stallwood, 1996). The financial performance of a company can be influenced by many different aspects or f actors and for the purpose of this study, corporate governance was taken into consideration and specifically the aspect of board characteristics. The board of directors is an important entity in a company creating a link between shareholders and managers and therefore playing an important role in the governance of the firm (Dehaene et al., 2007). Therefore, boards of directors are charged with the task of monitoring the performance and activities of top management to ensure that the latter acts in the best interests of the owners (Jensen and Meckling, 1976; quoted by OConnell and Cramer, 2010) Don’t waste time! Our writers will create an original "THEORETICAL FRAMEWORK AND RESEARCH DESIGN" essay for you Create order 3.2 PROBLEM DEFINITION After the 1994 genocide many companies in Rwanda were destroyed and some of them have not recovered up to today. Among the companies affected by the genocide include manufacturing companies out of which some tried to recover and restart their activities progressively and the country is providing a good environment for business but this does not guarantee good performance on behalf of companies. Standard financial reports provide basic information on the current profit level of investment in assets but do not give information on whether profit is adequate, how efficiently the assets are being used to generate sales, how efficient the overall operation is, and whether there are short-term financial problems facing the business. Ratio analysis provides some answers to these questions by calculating the relationships between various figures on the balance sheet and the income statement and comparing the movements in these ratios over time and against industry averages can provide ad ditional information about whether the organization is performing well or whether remedial action is needed (Stallwood, 1996). Ratio analysis is an important and powerful analytical tool for measuring the performance of a business entity. It helps stakeholders to make an evaluation about the profitability and financial soundness of the business entity (Van et al., 2003). Some key companies in the manufacturing sector do not have thorough financial analysis which makes it difficult for stakeholders to know how these companies are performing; BRALIRWA will be used as representative case study to exemplify the financial performance of companies in the sector and the way this performance is influenced by corporate governance. The way companies are directed and controlled can influence their performance (Berle Means, 1932), in some companies there is lack of consistency in reporting operating and financial activities as well as governance activities to shareholders in a fair, accurat e, timely, reliable, relevant, complete and verifiable manner. Manufacturing companies in Rwanda contribute to the economic development of the country and hence a need to evaluate their performance in other to detect their likely future and take appropriate measures accordingly, as well as the influence of corporate governance on their performance. 3.3 RESEARCH OBJECTIVES This study has one general objective and five specific objectives. 3.3.1 General objective The general objective of this study is to assess the financial performance of BRALIRWA s.a (2005-2008) and the influence of its corporate governance on the performance 3.3.2 Specific objectives To analyze the operating efficiency and profitability of BRALIRWA to know its level of operating performance. To analyze the sales and earnings variability in order to measure the risk that BRALIRWA may be exposed to. To analyze the internal liquidity of BRALIRWA in order to measure its ability to meet financial obligations in the short-term. To assess the impact if any of BRALIRWA governance on its performance. To analyze the sustainable growth potential of BRALIRWA. 3.4 THEORETICAL FRAMEWORK The theoretical framework adopted in this study was developed based on different literature on the analysis and evaluation of financial performance and literature on corporate governance and firm performance. 3.4.1 Dependent variable According to Jones, Wahba and Heijden (2007), the dependent variable is the one main research issue you are studying, on which other variables in theoretical framework are assumed to have an impact. Creswell (2002), defines dependent variables as the outcomes or results of the influence of the independent variables. For this study, financial performance stands for the dependent variable. Financial performance is usually measured by ROE and ROA, for this study financial analysis is used to analyze the financial performance of BRALIRWA and the analysis is conducted in three categories; the analysis of internal liquidity, operating performance and risk. When analyzing internal liquidity, the intention is to indicate the firms ability to meet its future short-term financial obligations, this may be an indication over a certain period of the likely performance of a company because if a firm is not able to meet its short-term financial obligations for a long period, definitely this wi ll affect its performance but the analysis of this may help the organization take necessary actions. The analysis here is based on current ratio, quick ratio, cash ratio, receivables turnover and inventory turnover. The analysis of operating performance, examines how management uses its assets and capital by measuring the sales generated by various categories of assets or capital and analyzes the profits as a percentage of sales and as a percentage of the assets and capital employed (Brown and Reilly, 2009). The ratios used are the asset turnover, equity turnover, profit margins, return on equity and return on assets. Concerning the risk analysis, both business and financial risks are measured and analyzed, here the emphasis is on the sales variability, operating leverage which consists of the variability of a firms operating earnings and then the debt-equity ratio to measure the financial risk. 3.4.2 Independent variables Independent variables are the variables impacting on your main research problem. They are called independent in a sense that those variables are affecting the amount of dependent variables and do not affect each other, so they are independent of each other (Jones, Wahba and Heijden, 2007). Corporate governance stands for the independent variable for this study. Corporate governance is the mechanism by which a corporation is managed and monitored. It determines a power-sharing relationship between corporation executives and investors by providing structure through which the objectives are defined; policies and procedures are established to ensure achievement of these objectives; and activities, affairs, and performance are monitored (Rezaee, 2004). Based on this definition and other definitions of corporate governance, it can positively or negatively influence the performance of a company and for the purpose of this study, the influence will be analyzed based on board characteristic s which are treated as the moderating variables in this study and considered as one of the aspects of corporate governance. 3.4.3 Moderating variables Moderating variables are included in the theoretical model to modify the way that the independent variables will affect the dependent variable. They might act as a catalyst of these relationships and strengthen them or perhaps they just inhibit the relationship and weaken it (Jones, Wahba and Heijden, 2007). For this study the moderating variables are the board characteristics, and the following characteristics were taken into consideration the board size, board composition, CEO duality, board diversity and frequency of board meetings. The board size is the number of members on the board and as boards are considered to be large decision-making groups, size can affect the decision-making process and effectiveness of the board (Dwivedi and Jain, 2005). Talking about the board composition, the board may be composed of directors who may be executive meaning that they are employees of the firm, or non-executive meaning they are not employees of the company; and this may have an effect on firm performance. CEO duality consists of having the same person holding both the board chairman and CEO positions or having the CEO and board chair positions separate, this also may have an impact on firm performance. When it comes to board diversity, the consideration is that there may be some diversification in the board members which may or may not have an influence on firm performance; diversity for this study is seen as gender diversity, racial diversity and experience/background diversity. Board meeting frequency consists of how frequently the board meetings are scheduled and the board activity is measured by the frequency of board meeting, this frequency may impact on the performance of the firm. Figure 3.1: Theoretical Framework Source: Research, 2010 3.4.4 Research assumptions Based on the various corporate scandals due to the manipulation of financial statements, the researcher made an assumption that the information provided in the audited financial statements of BRALIRWA for the period 2005-2008 are true and accurate. It was assumed that the respondents would be willing to fill the questionnaires and that the staff in the finance department of BRALIRWA would cooperate in providing any necessary information regarding the financial statements. 3.4.5 Research limitations The study uses BRALIRWA as a case study, which may provide little basis for generalization on the performance of other manufacturing companies The study only use a time-series analysis because there are no competitors in the industry to compare with The financial statements analyzed were the balance sheet and income statement because the company does not prepare cash flow statement The study only used board characteristics as the aspects of corporate governance due to time and logistics constraints the researcher could not use other aspects. The study was limited to a period of four years from 2005 to 2008 3.5 RESEARCH QUESTIONs To achieve the research objectives of this study; the study has to answer the following major and minor research questions. 3.5.1 Major research questions How is BRALIRWA financially performing for the period under study and what is the implication for future performance? How is BRALIRWA governance influencing its performance? 3.5.2 Minor research questions How well is the management of BRALIRWA doing to generate operating profits on companys assets? How well is BRALIRWA management using the capital invested? How is BRALIRWA financing its assets and how variable its earnings are? How well is BRALIRWA doing to meet its maturing financial obligations? The above mentioned research questions will help in analyzing the financial performance of BRALIRWA and the influence of its corporate governance on performance. 3.6 RESEARCH METHODOLOGY 3.6.1 Research type This study is basically quantitative with a small portion of qualitative and descriptive in nature and is using a case study method. The study is using the computation of different ratios to analyze the financial performance of BRALIRWA and statistical measure like mean, standard deviation and correlation are also used; and it is also qualitative in the sense that it is looking at the perceptions of staff on the influence of corporate governance on the performance. The purpose of quantitative research is to determine the quantity or extent of some phenomenon in the form of numbers (Zikmund, 1994). 3.6.1.1 Case study methodology This study is using BRALIRWA as a case study representing other manufacturing companies in Rwanda. BRALIRWA was chosen as a case study because of its long stay in the business and as being one of the manufacturing companies that were operating before the 1994 Rwandan genocide and which has continued operating and the major motivation for the researcher to take it as a representative case study is that the manufacturing sector in Rwanda is mostly made of food and beverages companies where BRALIRWA is dominating. According to Robson (2002:178) cited by Saunders, Lewis and Thornhill (2007), a case study is a strategy for doing research which involves an empirical investigation of a particular contemporary phenomenon within its real life context using multiple sources of evidence. Yin (2009) defines a case study as an empirical inquiry that investigates a contemporary phenomenon in depth and within its real life context, especially when the boundaries between phenomenon and context are not clearly evident. According to Yin (2009), the case study inquiry copes with the technically distinctive situation in which there will be many more variables of interest than data points, and one result; relies on multiple source of evidence, with data needing to converge in a triangulating fashion, and as another result; and benefits from the prior development of theoretical propositions to guide data collection and analysis. 3.6.1.2 Descriptive research This study is descriptive as it is describing and evaluating systematically how BRALIRWA has been performing for the period under study. According to Kumar (2005), a descriptive research attempts to describe systematically a situation, problem, phenomenon, service or program, or provides information about something or describes attitudes towards an issue. 3.6.1.3 Quantitative and qualitative research As discussed early, this study is a mix of quantitative and qualitative, it is evaluating the performance of BRALIRWA by quantifying it through different ratios to analyze the internal liquidity, operating performance and risk and most of the information is gathered using quantitative variables (through financial statements). On the other hand, the study is qualitative in the way that it has some variables which were analyzed without being quantified. The study is qualified as quantitative if one wants to quantify the variation in a phenomenon, situation, problem, or issue; if information gathered using predominantly quantitative variables; and if the analysis is geared to ascertain the magnitude of the variation. On the other hand, a study is qualified as qualitative if the purpose of the study is primary to describe a situation, phenomenon, problem or event; the information is gathered through the use of variables measured on nominal or ordinal scales; and if analysis is done to establish the variation in the situation, phenomenon or problem without quantifying it (Kumar, 2005). 3.6.2 Data collection instrument and source For the purpose of this study, both primary and secondary data were collected. To collect primary data questionnaires were distributed to the staff of BRALIRWA to know and analyze their perceptions on the influence of board characteristics on firm performance, the questionnaires were given to different staff but the most targeted were the managers and directors (management team) and heads of department and then some of the officers in different departments; interviews were also used with the staff in the finance department to get some clarifications on the content of the financial statements. And to collect secondary data, different literature on the evaluation of financial performance and those on the relationship between corporate governance (board characteristics) were reviewed through books, journals, articles and websites; and the financial statements of BRALIRWA for a period of 2005-2008 were consulted and analyzed through financial ratios. 3.6.3 Sampling methods Sampling is the process of selecting a few (a sample) from a bigger group (the sampling population) to become the basis for estimating or predicting the prevalence of an unknown piece of information, situation or outcome regarding the bigger group; a sample is a subgroup of the population one is interested in (Kumar, 2005). For the purpose of this study, judgmental sampling technique has been used to select the sample in order to collect primary data. Purposive or judgmental sampling enables you to use your judgment to select cases that will best enable you to answer your research question(s) and to meet your objectives. This form of sample is often used when working with very small samples such as in case study research and when you wish to select cases that are particularly informative (Saunders, Lewis and Thornhill, 2007 quoting Neuman, 2000). According to Kumar (2005), the primary consideration in purposive sampling is the judgment of the researcher as to who can provide the best information to achieve the objectives of the study; the researcher only goes to those people who in his/her opinion are likely to have the required information and be willing to share it. For the respondents to fill the questionnaire it required a certain degree of information about the board of directors and the judgmental sampling is the appropriate technique to this study. 3.6.4 Sample size A sample of 25 respondents was selected from the staff of BRALIRWA which is the population of the study; as stated early the sample was selected using judgmental sampling. The respondents were selected from different departments of the company and from top management to senior officers and the sample is the representative of the population. 3.6.4 Data analysis methods The study is based more on the secondary data as the evaluation of financial performance is based on the financial statements of the case company (BRALIRWA) and on primary data which were collected using a questionnaire to analyze the influence of the board characteristics on the financial performance of the company as perceived by the company employees. In the process of data analysis, the information from the financial statement were first presented according to the research objectives and research questions and based on the theoretical framework and literature review; then they were analyzed using appropriate ratios and the analysis was based on time series analysis, some statistics were used such as mean and standard deviation for the researcher to analyze the data and come up with conclusions and recommendations. To analyze the data collected from questionnaires, the following process was followed; first the data were edited, then coded and frequency distribution were used. To analyze, the open-ended questions, content analysis was used whereby different themes were identified from the answers given by the respondents and then verbatim responses were examined and discussed with reference to literature to come up with research findings, conclusion and recommendations. 3.7 CHAPTER SUMMARY This chapter discussed the research problem by highlighting that in Rwanda some key companies do not have thorough financial analysis and that the performance of companies may be influenced by the way they are managed and monitored where this may depend on the characteristics of the board. The chapter also discussed the theoretical framework that was used for this study and the dependent, independent and moderating variables were identified; financial performance is the dependent variable which is determined through the analysis of internal liquidity, operating performance and risk and the summarizing indicators of financial performance for the purpose of this study were identified as ROE and ROA. The chapter goes on discussing the research objectives, research questions, the assumptions and limitations of study. Then the chapter concludes with the discussion of the research methodology that was used to conduct the research and to achieve the research objectives and to answer the research questions that were put forward; the study is a mix of quantitative and qualitative, both secondary and primary were used and financial statements and other sources were used to collect secondary data and the questionnaire was used to collect primary and the questionnaires were sent to a sample of 25 respondents, the sample was selected using judgmental sampling.

The Truman Show By Peter Weir Essay - 1236 Words

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Battle Royal And Mai Chai Lee s My Grandmother The War...

Ralph Ellison’s â€Å"Battle Royal† and Mai Chai Lee’s â€Å"Your Grandmother the War Criminal† use symbolism in the theme of struggling for equality. The narrator in â€Å"Battle Royal† being an African American and the narrator of â€Å"Your Grandmother the War Criminal† an Asian American both struggle to live in America where they are not accepted by White Americans. They both dealt with racism, discrimination, and unfair treatment. Ellison showed this in how the boys were treated at the battle royal and Mai Chai Lee showed discrimination through the camp the narrator and her mother were held in. Ralph Ellison’s â€Å"Battle Royal† is a short story about a young African American man who delivers a speech at his graduation and he was given the opportunity to†¦show more content†¦After the attack on Pearl Harbor in 1941 President Franklin D. Roosevelt signed an executive order to remove any Japanese that he thought could potentially be a threat to the war. Everyone of Japanese decent living on the West Coast were given a week to figure out what to do with their houses and pack up their lives. The only items people could bring was in a bag that fit on a bus. By November 1942, ten camps were built and two-thirds of Japanese Americans were placed. The camps were guarded with eight towers and surrounded by military police outside the walls. While in the camp the narrator and her mother were doing laundry and hanging up clothes on the line. The narrator was watching the seagulls when one of the seagulls was shot down in front of her by the men on guard in the tower. After seeing the seagull shot down and its blood on her clothes her world was shattered. She never caught herself staring at the seagulls flying and she hated them. Her hating the seagull was her loss of innocence. The narrator was so frightened by what she saw that she did not want to look at the seagulls which were also her sense of hope. They were her hope of being freed from the camp. Seeing the birds fly freely helped believe that she too will one day can walk free amongst others in America. The guard ruined that hope and innocence for her. He knew that she was looking at the seagulls when he decided to shoot one to bring her attention

The General Theory Of Crime Essay - 1772 Words

Main Body As the nineties began, the general theory of crime became the most prominent criminological theory ever proposed; furthermore, it is empirically recognized as the primary determinant in deviant and criminal behaviors. Known also as the self-control theory, the general theory of crime can most simply be defined as the absence or lack of self-control that an individual possesses, which in turn may lead them to commit unusual and or unlawful deeds. Authored by educator Michael R. Gottfredson and sociologist Travis Hirschi, A General Theory of Crime (1990) essentially â€Å"dumbed down† every theory of crime into two words, self-control. The widely accepted book holds that low self-control is the main reason that a person initiates all crimes, ranging from murder and rape to burglary and embezzlement. Gottfredson and Hirschi also highlighted, in A General Theory of Crime (1990), that low self-control correlates with personal impulsivity. 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The Birth of Complex Cells Free Essays

Having more understanding of how the process of scientific inquiry works, t he more I felt that science is a result Of efforts made by scientists through the accumulation of time. For example, in order to provide an evidence that the SST art of a complex cells begins with having an ancestral cells hosting other living cells, scientists first need to search for an evidence that that living cell did exist. The n, they have to provide an evidence HOW did the host cells symbiosis with the living c Hence, being able to see how science is conducted, I really appreciate all the perseverance and patience the scientists put into a research just to find ONE evidence to support/overthrow a theory. We will write a custom essay sample on The Birth of Complex Cells or any similar topic only for you Order Now 2. The osmosis and strawberry DNA extraction lab allows me to understand h owe our cell membrane works and what it is made for. With the osmosis lab I understood odd how water follows from low concentration to high, and this experiment is important NT to how he nutrients are transported in and out of our cell through osmosis. From the strawberry DNA extraction lab, we first added detergent to dissolve the outer membrane causing the strawberry DNA to isolate from the rest of the residua product. This allows us to know that membranes are made of lipids, which dish solve in detergent, giving us more clue on how did our ancestral cells â€Å"endoscopies NT† another living cell by making its way through the membrane. After reading this article I still wonder, in the beginning when the complex c alls are forming, why didn’t the ancestral cell tell the living cell apart from itself? Why our ancestral cell didn’t just eat and dissolve that living cell, instead symbiosis with I t? 4. 1 like the way the article discuss not only about the different possibilities of how a cell might have formed, but also the point of views the scientists have now an d then. Another thing I really enjoy reading about this article is that it carefully written out all the steps a scientist did to conduct an experiment, including the challenges a d the outcome he received. Yet, on the other hand, I feel like this paragraph contain s way too much information needed for a beginner in biology to understand, include ding all the definitions of biological terms. 5. Yes, this paper really allows a student in biology to understand the origin of a cell, and how we became to be. Yet, I WOUld recommend this project to be assign eater on in the class because it contains great amount of information, and students wow old learn better corresponding to the knowledge they have. How to cite The Birth of Complex Cells, Papers

The Birth of Complex Cells Free Essays

Having more understanding of how the process of scientific inquiry works, t he more I felt that science is a result Of efforts made by scientists through the accumulation of time. For example, in order to provide an evidence that the SST art of a complex cells begins with having an ancestral cells hosting other living cells, scientists first need to search for an evidence that that living cell did exist. The n, they have to provide an evidence HOW did the host cells symbiosis with the living c Hence, being able to see how science is conducted, I really appreciate all the perseverance and patience the scientists put into a research just to find ONE evidence to support/overthrow a theory. We will write a custom essay sample on The Birth of Complex Cells or any similar topic only for you Order Now 2. The osmosis and strawberry DNA extraction lab allows me to understand h owe our cell membrane works and what it is made for. With the osmosis lab I understood odd how water follows from low concentration to high, and this experiment is important NT to how he nutrients are transported in and out of our cell through osmosis. From the strawberry DNA extraction lab, we first added detergent to dissolve the outer membrane causing the strawberry DNA to isolate from the rest of the residua product. This allows us to know that membranes are made of lipids, which dish solve in detergent, giving us more clue on how did our ancestral cells â€Å"endoscopies NT† another living cell by making its way through the membrane. After reading this article I still wonder, in the beginning when the complex c alls are forming, why didn’t the ancestral cell tell the living cell apart from itself? Why our ancestral cell didn’t just eat and dissolve that living cell, instead symbiosis with I t? 4. 1 like the way the article discuss not only about the different possibilities of how a cell might have formed, but also the point of views the scientists have now an d then. Another thing I really enjoy reading about this article is that it carefully written out all the steps a scientist did to conduct an experiment, including the challenges a d the outcome he received. Yet, on the other hand, I feel like this paragraph contain s way too much information needed for a beginner in biology to understand, include ding all the definitions of biological terms. 5. Yes, this paper really allows a student in biology to understand the origin of a cell, and how we became to be. Yet, I WOUld recommend this project to be assign eater on in the class because it contains great amount of information, and students wow old learn better corresponding to the knowledge they have. How to cite The Birth of Complex Cells, Papers