Financial management

The role of managers

The task of the finance function

Primary objective

      The primary objective of a business is shareholder wealth maximisation

      Not the same as profit maximisation

      To achieve wealth maximisation the needs of other stakeholders must be considered

      High ethical standards may be needed to maximise shareholder wealth

Shareholder wealth maximisation

Profit maximisation problems 

 

Stakeholder approach – problems

Relationship between risk and return

The role of business ethics

      Business ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce.

      Violations of these standards in finance involve a variety of actions: “creative accounting,” earnings management, misleading financial forecasts, insider trading, fraud, excessive executive compensation, options backdating, bribery, and kickbacks.

      Negative publicity often leads to negative impacts on a firm.

The role of business ethics: considering ethics

Robert A. Cooke, a noted ethicist, suggests that the following questions be used to assess the ethical viability of a proposed action:

–        Is the action arbitrary or capricious? Does the action unfairly single out an individual or group?

–        Does the action affect the morals, or legal rights of any individual or group?

–        Does the action conform to accepted moral standards?

–        Are there alternative courses of action that are less likely to cause actual or potential harm?

The role of business ethics:
ethics and share price

      Ethics programs seek to:

–        reduce litigation and judgment costs

–        maintain a positive corporate image

–        build shareholder confidence

–        gain the loyalty and respect of all stakeholders

      The expected result of such programs is to positively affect the firm’s share price.

Principles underpinning a framework of rules

Matter of Fact—Forbes.com
CEO Performance vs. Pay

The UK Corporate Governance code

 

Ownership of UK listed shares

 

The main forms of shareholder activism

 

UK Stewardship code 

Financial planning

Steps in the planning process

Projected financial statements

The projected financial statements
 normally comprise:

   - Projected income statement

                - Projected statement of financial position   

     (balance sheet)

                - Projected cash flow statement

Preparing projected financial statements

      External variables:

                Tax rate, Interest rates for borrowings, Inflation rate

      Internal variables:

                Capital expenditure commitments, Financing agreements, Inventories holding policies, Credit period allowed to customers, Payment policies for trade payables, Accounting policies, Dividend policy

Steps in preparing projected financial statements

 Preparing projected financial statements

      Projected financial statements may cover a short-term or long-term horizon:

      Short-term usually involves detailed forecasts of income, cash flows and financial position

      Long-term usually involves making simplifying assumptions

Sources of cash inflows and outflows 

Forecast financial statements and decision-making

      How were the projections developed?

      What underlying assumptions have been made and are they valid?

      Have all relevant items been included?

      Are the cash flows satisfactory?
 Can they be improved by changing policies or plans?

      Is there a need for additional financing?
Is it feasible to obtain the amount required?

      Can any surplus funds be profitably reinvested?

      Is the level of projected profit satisfactory in relation to the risks involved? If not, what could be done to improve matters?

      Are the sales and individual expense items at a satisfactory level?

      Is the financial position at the end of the period acceptable?

      Is the level of borrowing acceptable?
Is the business too dependent on borrowing?

Percent-of-sales method

Deducing the net cash flows from operations

Projected financial statements and risk

      Risk assessment may be undertaken using:

                Sensitivity analysis

                Scenario analysis

      Sensitivity analysis: A method to evaluate the key variables affecting a project to see how changes in each variable might influence the outcome.

      Scenario analysis: A method of dealing with risk that involves changing a number of variables simultaneously so as to provide a particular scenario for managers to consider.

Quality references on competitive advantage and continuous improvement

Abrahamsson, G. and Gerdin, J. (2006). Exploiting institutional contradictions: The role of management accounting in continuous improvement implementation, Qualitative Research in Accounting and Management, 3(2), 126-144

Albright, T. and Lam, M. (2006). Managerial Accounting and Continuous Improvement Initiatives: A Retrospective and Framework, Journal of Managerial Issues, 18(2), 157-174

Bernett, R. and Nentl, N. (2010). Opinions and Expectations about Continuous Improvement Programs, Journal for Quality & Participation, 32(4), 35-38

Briley, R., Fowler, P. and Teel, J. (2000). Continuous improvement, Journal of Environmental Health, 62(6), 39-40

Chang, H.H. (2005). The Influence of Continuous Improvement and Performance Factors in Total Quality Organisation. Total Quality Management & Business Excellence, 16(3), 413-437

Christopher, M.(2004) Logistics and Supply Chain Management. Dawsonera [Online]. Available at: https://www.dawsonera.com/abstract/9781405871099 (Assessed: 25July 2014).

Cundiff, K. (2004). Closing the Loop: How Credit Scoring Drives Performance Improvements along the Financial Value Chain, Business Credit, 106(3), 38-42

Jabnoun, N. (2001). Values underlying continuous improvement, The TQM Magazine, 13(6), 381-387

Kahlen, F. and Patel, Y. (2011). Leaning the Supply Chain to Maximize Value Delivery to the Customer: A Case Study. Leadership and Management in Engineering, 11(2), 128–136

Kovach, J.V. and Fredendall, L.D. (2013). The Influence of Continuous Improvement Practices on Learning: An Empirical Study, The Quality Management Journal, 20(4), 6-20

Lemire, M., Demers-Payette, O. and Jefferson-Falardeau, J. (2013). Dissemination of performance information and continuous improvement: A narrative systematic review, Journal of Health Organization and Management, 27(4), 449-78

Martowidjojo, A. and Alamsjah, F. (2011). The role of organizational learning on innovation value chain, IEEE International Summer Conference of Asia Pacific Business Innovation and Technology Management, 113 – 116

Oprime, P.C., Mendes, H.S. and Primenta, M.L. (2012). Continuous improvement: critical factors in Brazilian industrial companies, International Journal of Productivity and Performance Management, 61(1), 69-92

Savolainen, T.I. (1999). Cycles of continuous improvement Realizing competitive advantages through quality, International Journal of Operations & Production Management, 19(11), 1203-1222

Sekhar,S. (2009) Business policy and strategic management. New Delhi: I.K International Publishing House Pvt. Ltd

Shortell, S.M. et al, 1995. Assessing the impact of continuous quality improvement/total quality management: concept versus implementation, Health services research, 30(2), 377 – 401

Singh, J. and Singh, H. (2013). Continuous Improvement Strategies: an overview.  IUP Journal of Operations Management, 12(1), 32-57

Stabell,C. and Fjeldstad,O. (1998). Configuring value for competitive advantage: On chains, shops and networks, Strategic Management Journal,19, 413-497 [Online]. Available at: http://www.peopleandprocess.com/resources/Stabell_chain_shop_net.pdf (Assessed: 25 July 2014)

Suárez-Barraza, M.F. and Ramis-Pujol, J. (2010). Implementation of Lean-Kaizen in the human resource service process: A case study in a Mexican public service organisation, Journal of Manufacturing Technology Management, 21(3), 388-410

Taylor, D.H. (2005). Value chain analysis: an approach to supply chain improvement in agri-food chains, International Journal of Physical Distribution & Logistics Management, 35(9/10), 744-761

Walker, S.M. and Davies, B.J. (2011). Deploying continuous improvement across the drug discovery value chain, Drug Discovery Today, 16(11/12), 467–471

Zokaei, A.K. and Simons, D.W. (2006). Value chain analysis in consumer focus improvement: A case study of the UK red meat industry, International Journal of Logistics Management, 17(2), 141-162

Business Functions and Processes – Resit Assignment

Task:

Porter (1979) depicted the firm as a ‘value chain’ comprising activities performed by its constituent functions. These functions may be found in most organisations and each contributes to the overall competitiveness of the business and helps it to gain and maintain an advantage in the marketplace.

Discuss how functional activities need to be aligned in order to support an organisation’s strategic goal to engage in continuous improvement.

Indicative Reading:

Your assignment should draw upon a range of contemporary academic literature from journals and textbooks.

The following articles should help you to begin your literature review but you MUST NOT rely upon these few articles alone!

Bernett, Rick; Nentl, Nancy. 2010 Opinions and Expectations About Continuous Improvement Programs. Journal for Quality & Participation, Vol. 32 Issue 4, 35-38

Singh, Jagdeep; Singh, Harwinder. 2013 Continuous Improvement Strategies: an overview.  IUP Journal of Operations Management, Vol. 12 Issue 1.32-57

Hsin Hsin Chang. 2005 The Influence of Continuous Improvement and Performance Factors in Total Quality Organisation. Total Quality Management & Business Excellence, Vol. 16 Issue 3. 413-437

NOTE:

Word limit = 5000 +/- 10%

All in-text references DO COUNT towards the word limit.

The reference list DOES NOT count toward the word limit.

Text should be font size 12, 1.5 line spacing, Arial or Times New Roman font.

For Quality Research Projects, Assignments, Dissertations, Theses: jumachris85@gmail.com

Financing a business: sources of finance

The major external sources of finance

Ordinary shareholders

      Also known as Common stockholders.

      Receive a dividend only if there are remaining profits after preference shareholders and lenders have received their dividend or interest payments.

      Have limited potential loss liability but unlimited potential returns.

      Control the business through their voting rights

      It may be possible for the business to avoid paying a dividend, but it is not usually possible to avoid interest payments. There is typically contractual obligation on the business to pay interests.    

      The business does not obtain any tax relief on dividends paid to shareholders, but interest payments on borrowings are tax deductible from profit for corporation tax purposes.

Preference shareholders

      Also known as preferred stockholders.

      Have a lower level of risk than ordinary/common shareholders.

      Have priority over ordinary/common shareholders in receiving dividends

      Do not usually have voting rights

      Dividends paid to preference/preferred  shareholders, like those paid to ordinary/common shareholders, are not allowable against taxable profits, whereas interests payments on loans are allowable expense.

Types of loan capital

The risk/return characteristics of long-term capital

The securitisation process

       Securitisation involves bundling together illiquid financial or physical assets of the same type in order to provide backing for an issue of bonds.

      Has spread beyond the banking industry and has now become an important source of finance for businesses in a wide range of industries.

Long-term versus short-term funding

Short-term and long-term financing requirements

Major internal sources of finance

Pecking order theory and long-term financing