Managerial accounting is considered a very important aspect of every organization. It should be followed in a very systematic manner as it has a direct relationship with profit margin and financial. The overall report is classified in four parts which are discussing various elements of managerial accounting. It is discussing about specific product divisions which produce very low value-added items and have a requirement of huge working capital with critical analysis of selling these divisions. It has also discussed the gearing ratio of all the six divisions of Triton corporation with its specific analysis. The present report has determined factors that are influencing the payback period and critical analysis of decreasing gearing and investment in modification. It has also given major recommendations on basis of relying on financial ratio analysis and different budgetary control for coordinating and controlling groups. All the ethical issues are elaborated in Triton Corporation accounting function and for expansion overseas. There is the presence of a method for framing the strategic decisions in the context of the long-term viability of both bathroom and pipes division. The plans such as decentralization have to be imposed in this report.
A. Framing report to managing direct
(a) Identifying each product divisions
The assessment of various divisions in light has been increasing day by day. As the specific organization which has drafted six operating divisions such as Floor boards, electrical products, industrial services, Pipes, bathroom services and car accessories. Triton Corporation has generated sales in large volume in last year of electrical products and then Industrial services. The cost of sales of floor board is in very huge proportion by comparing to other 5 divisions margin. The most of salary consumption was performed by industrial services but in context of profitability is also in good position (Chen, 2012). The pipe division is consuming too much salary but not reflecting in terms of profit which is least among all divisions.
Illustration 1: Market share
Illustration 2: Operating Profit Margin
- Electrical products: 40% is market share of electrical products in the period of recession as it is one of the basic necessity in every household and organization as well. It has interrelationship with sales which is in huge proportion among all divisions but its material cost is also simultaneously higher. By observing profit contribution of Triton corporation it is represented as 5.5 after writing off all payments of variable cost like salaries and wages, material etc. it is not indicated as very efficient operating margin as Triton Corporation is not having capability for controlling cost of this specific division. There is a huge requirement of working capital.
- Floor Boards: Among all six divisions, its market share is of 27% which has absence of capability for contributing in operating profit due to high material cost and high salaries. Triton corporation is not controlling its variable cost ion this specific division as for modifying it properly there is a requirement of huge working capital.
- Car accessories: As per this division, sales are not at up-to level but in context of its variable cost like material cost is consuming very less amount, salaries in very systematic manner so Triton Corporation has ability to achieve very huge proportion that is 17.54 which is not highest but gains second position in terms of operating profit and market share as well.
- Industrial services: In the aspect of operating profit margin, it is leading division. It had gained this position by maintaining its sales as it had not controlled its variable cost. This can be refereed as one of strategy for gaining profit from its operations (Weygandt, Kimmel and Kieso, 2015). The proportion of sales and variable cost is not matching as it has huge spread or variations so it is not imposing huge market share but it has gained maximum profit from its operation among all six divisions of 23.74%.
- Bathroom accessories: This specific duration has very less contribution in aspect of sales but in average manner Triton Corporation had controlled its variable cost such as low salaries and wages which has also imposed very less market share but in context of operating profit it is not at worse position such as floor boards and electrical product. It is generating profit from its operation of 7.14%.
- Pipes: This division is not even capable to generate sales then operating profit and market share is not possible also in good position. The sales are least as 6 million and in turn its variable cost is 5.9. So it can be clearly viewed that Triton Corporation is not able to handle this division in very efficient manner as it has a requirement for specific modification which can improve its stability in this division such as need of working capital.
(b) Expressing low value added items by reflecting financial returns and profitability position
The division of Industrial services has the best position in context of profitability and financial returns. It has gained huge profit with operation in a portfolio of Triton corporation of 23.74% which is followed up by car accessories and then bathroom services (Nitzl and Chin, 2017). There is a requirement of tracking sales, operation along with its variable cost. The low value added services can be evaluated as per operating profit margin are mentioned below:
- 67 operating margin of pipes.
- 5 operating margin of electrical products.
- 5 operating margin of floor boards.
There is a huge requirement of working capital with perspective of pipes and measure should be undertaken for controlling cost. Triton Corporation must be able to keep a proper track on material cost of electrical products as it has direct relationship to margin. It has incorporated with huge sale but it left behind due to poor control of variable cost. The accessories of bathroom were at average position so for improving sales they must be having capability for tracing its variable cost along with its operations (Butler and Ghosh, 2015. It is considered as very essential and vital for each household and organization as well. They should use very effective tools for promoting and satisfying existing customer and for a new segment as well.
B. Critically implicating arguments which are based on selling of two divisions
Improving the long term viabilities of firm which in turn desired of making the suitable changes in the operational practices. Therefore, in relation with making the suitable changes in the operational activities as well as making satisfactory rise in the capital structure of firm which required to sale the bathroom accessories and Pipes (Weygandt, Kimmel and Kieso, 2015). Therefore, the decision made by professionals in relation with selling off these divisions which will be profitable and helpful as per meeting requirements of Triton corporation. However, below listed table is consisted of all the relevant information regarding operational managements of the firm.
By considering the profitability retained by both the division in business on which Accessories are comparatively bringing the more satisfactory returns to business. There has been sale of 7 million while Pipes made the sales revenue of 6 million (Epure, 2016). Thus, on which the costs of various operations has been deducted which brings the outcomes as variable costs in Accessories are 6.5 million while in pipes it was 5.9 million. Thus, in relation with such outcomes, it can be said that accessories are having comparatively low costs as compared with pipes. The proportionate differences in both the costs derived information that pipes are comparatively non profitable and helpful for the business in terms of meeting the satisfactory level of revenue generation. Moreover, here operating profit of accessories is 0.5 million while pipes reflect 0.1 million of profitability. In accordance with measuring the OP margin, accessories have 7.14% while pipes have 1.67%. Considering such outcomes, it can be said that accessories will be beneficial in bringing satisfactory gains over the operational activities while pipes are comparatively less profitable.
By summing up the outcomes, it can be said that selling accessories will bring more suitable outcomes to firm as compared with pipes as it reflects appropriate revenue and gain to business. The market shares of these divisions among which accessories have 8% and Pipes are on 3%. Thus, in relation with such outcomes, it can be said that there will be suitable gains and operational practices which in turn will be adequate and helpful in terms of meeting the financial goals in required time period (Nitzl and Chin, 2017). To enhance the long term viabilities, the firm is required to make satisfactory changes in operational functioning. As per addressing the salaries payable to the employees enrolled in these divisions on which accessories as 1 million of salaries to workers while pipes has 2 million wage charges. Thus, in consideration with such outcomes, it can be said that there is need to make reduction in the costs incurred in pipes division.
Moreover, as per ascertaining the profitability of both the divisions and sales made by them, it can be said that there is need to have suitable changes in the operational practices as well as management of operations. Analysing the strategic plans which will be beneficial in relation with generating the appropriate gains and making profitable return over the operational practices. Strategies are comprised with improving the operational practices as well as making the alternative solution to reduce costs incurred in such division. Building a suitable environment and making necessary changes in the operational practices which will assistive as per meeting the financial goals in the right time. It will be effective in terms of improving the market share in both segmentations (Weygandt, Kimmel and Kieso, 2015). Thus, there will be profitable gains and revenue generation as per balancing the outcomes and meeting suitable operational needs.
(i) Identification and analysis of factors which helps in influencing longer pay back period
There are various factors that can be explored and analysed with respect to longer payback period. Some of them are mentioned below:
Downward trend of sales: There is greater impact of sales on assessing that what will be the payback period of particular asset. Overall trend of sales help in determining that how much amount has been generated by the business within specific period. It tends to reflect the duration within which overall earnings can be generated by the company (Masood and Ashraf, 2012). Due to decreased sales of the company, it can take longer time to recover the money back that has actually been invested in a particular asset.
Lack of usage of equipment purchased: In case of not being able to gather adequate amount of revenues, or which was expected out of it, in the specific period, then in that case, management may have to increase the duration being fixed as pay back period (Butler and Ghosh, 2015). There are chances that company may not be using a particular equipment, the way it was planned by the management. This may also affect total cash outflow out of the equipment.
Riskiness of finances chosen: based on overall risk involved in gathering the ownership of a particular asset helps in deciding that whether it will be able to generate adequate amount of revenues or not. It is significant that short term financing equipment are riskier in comparison to that of long term. Hence, if the payback period is relatively short, then in that case, there are chances that organization may not be able to generate profits and thereby increasing overall payback period attached to it as well (Amba, 2014).
Company experiencing losses: It the company is involved in experiencing losses, then in that case, there are chances that it may not be able to recover the money invested in a particular asset back, in the defined time. It can lead to enhancement of overall period required to generate the cash which was actually invested by it in particular asset. Hence, loss plays an important role in defining whether it will be fruitful to invest in a particular asset or not.
Ineffective Manager’s decisions as well as operations: There are higher chances of this factor to take place when it comes to ineffective organizing of asset leading exceeded pay back period. Ineffective decision-making aspects of the management ultimately affecting overall operations of the business. Further, there can be impact of wrong type of asset being chosen or not been able to derive adequate cash out of asset due to its wrong placement in the company (Buigut and Kibet, 2013). Hence, it can be stated that due to ineffective output generated out of the asset, it automatically decreases pay back period of the asset.
(ii) Analysis of relative importance of strategic aim in reducing gearing ratio to continue investing in modernisation programme
When an organization tend to have ha gearing ratio of more than 50%, then it is generally to be called as “highly geared.” Gearing ratio have strong focus on overall capital structure that has been adopted by the organization. It helps in identifying the proportion of finance that is provided by debt relative to the finance that has been provided in the form of equity. It also helps in defining liquidity position of the company. It also has strong focus upon long term financial stability of the business as well. It plays substantial role in deciding that what proportion of asset have actually been invested ion a business that has been financed with the help of long term borrowings (Chen, 2012).
Theories have stated that a high level of long term borrowings can be quite riskier to the business, since, the payment of interest and repayment of debt can not be an optional aspect as that in the case of dividend. The time duration of issuance of debt is longer in comparison to that of equity. Hence, it also increases overall payback period that is required to be kept for debt as well, affecting long term financial aspects of the company
However, gearing can be stated as a financially sound aspect of overall capital structure of the business if the company has been involved in strong and predictable cash flows. It increases overall financial risk of the company, thereby affecting strategic aim and objectives of the company. Even if the company is involved in generation of lower profits, it has to pay off high interest rates every year, until it has paid off all the debt generated (Amba, 2014). In terms of large amount of long term debt, there are higher chances that the organization become more susceptible to loan defaults and bankruptcy. It also hinders various plans of organization, such as, expansion, relocation, etc. hence, it can be stated that it can affect overall aim and objectives of the entity by hindering its normal business processes.
A high gearing ratio represents high proportion of debt to equity where as low gearing ration reflects the opposite. Sit can be stated that capital that is generated from creditors is rather riskier in comparison to that of other methods. It acts as a fixed liability on entity, where, despite of generation of losses or low profits, owners have to pay back to the creditors. It affects overall functioning of the company, as it can go into debt due to its accumulation year by year, at the time of losses. It may also result in being a major cause of company’s liquidation aspects (Gearing in Relation to Financial Risk, 2016).
Hence, it becomes important for the management to develop a strategy that can help in ensuring that what gearing ratio will actually be maintained by the company. It helps in fulfilment of aim and objectives being framed by the company, otherwise it becomes difficult to come up with adequate profits for it.
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D. Ascertaining the decentralisation programme on which decision making is pushed down
Initiating a decentralisation program which will be helpful as per balancing and managing the operational activities of the firm. Thus, in relation with such practices and the outcomes derived from such operations, it can be said that there is need to have appropriate operational control and implication of techniques to resolve such issues. In terms of bringing the financial stability and balancing capital structure of Triton Corporation, it can be said that there is need to have satisfactory budgeting system. Analysing financial positions and health of business ratio analysis will be very effective in relation with improving efficiencies and managing the operational cost. Moreover, to justify the profitability, liquidity and efficiency of business, there is need to have financial analysis.
1. Advising a managing director
Considering the operational activities of Triton Corporation, it can be said that implication of budgetary system and financial analysis will be helpful in deciding the financial strategies for business. Therefore, there can be effective development of various operations which will be indicative and helpful as per developing the suitable working environment of business. Similarly, in relation with the budgetary controlling system, it can be said that the budgets are prepared for making balanced financial operations which will be effective and helpful as per raising up the financial health (Weygandt, Kimmel and Kieso, 2015). Setting a limit of expenditures in the operations which in turn will be useful and adequate as per reaching the operational goals in the right time. It encourages the managerial professionals in planning and administrating the operational activities of firm in relation with making suitable changes in operations.
There are various budgeting methods and techniques which can be used by Triton Corporation. Operating the business activities will be helpful as per meeting the targeted goals in the right time. It ascertains the efficiency of firm in making financial operational efforts in the work. Estimated expenses will be beneficial as per reducing the costs and meeting the goals. It will bring appropriate execution of operations such as managing the financial resources and developing coordination among workforce. Thus, the productive efforts made by employees will improve efficiency of firm as well as the better allocation of capital funds in industrial operations. Thus, monitoring financial transactions will be appropriate as per making suitable changes in the operational performance of firm.
Liquidity of Triton Corporation:
Interpretation: By considering the results of Triton Corporation on the basis of its current ration which represent the short term solvency of business. Thus, current assets of firm was 35 and liabilities was 20 on which the ratios have been derived as 1.75:1. The idol ratio of Current ratios is 2:1 on which it can be said that the firm will have appropriate capital structure which in turn will be fruitful and beneficial as per meeting the operational gains.
Solvency ratio of Triton Corporation:
Interpretation: In consideration with the solvency ration which have been measured through analysing the Deb-Equity ratio. It will be helpful in bringing the information relevant with the long term solvency of firm. Thus, to analyse the outcomes on which elements will be considered such as loan and Shareholder's equity. Loan amounted to 48 while a shareholder's equity is to be considered as 22 which brings the suitable outcomes as 2.18. Thus, in relation with such outcomes it can be said that the firm is capable of meeting long term solvency.
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2. Critically analysing management accounting functions and ethical issues
Management accounting is the most important and helpful techniques which will be appropriate as per balancing the operational activities as well as managing the internal operational activities of the firm. Internal operations of firm will have appropriate execution and management that will be useful and effective as per analysing the costs and monitoring business operations. It consists of preparing various reports such as budgets, costs sheets, accounts of various transactional activities etc. Thus, such reporting required proper administration which will be effective as per analysing actual needs (Budgetary control, 2018). It provokes managerial professionals in decision making as well as managing operational expenses of firm.
Considering the ethical requirements of management accounting techniques is that it requires proper execution and management of operations as well as preparation of proper reports. It will be informative to professionals in terms of analysing the requirements and making suitable analysis over business operations. Moreover, it will bound managerial professionals in decision making as well as analysing the requirement of firm in due period.
On the basis of above report it can be said that managements of operational activities as well as identification of business needs are the prime factors which are to be considered by professionals. Triton Corporation has various range of products which are intended to be sold out for making effective analysis over the market and making suitable gains to business. Moreover, as per analysing the operational activities of industries in various divisions it can e said that there is needed to make suitable development in the operational practices. Thus, the business have to bring suitable alternatives in expenses and make appropriate changes accordingly.
Books and Journals
- Amba, S. M., 2014. Corporate governance and firms' financial performance. Journal of Academic and Business Ethics. 8. p.1.
- Amba, S.M., 2014. Corporate governance and firms' financial performance. Journal of Academic and Business Ethics. 8. p.1.
- Buigut, K. and Kibet, J., 2013. The effect of capital structure on share price on listed firms in Kenya. A case of energy listed firms. European Journal of Business and Management. 5(9). pp.29-35.
- Butler, S. A. and Ghosh, D., 2015. Individual differences in managerial accounting judgments and decision making. The British Accounting Review. 47(1). pp.33-45.
- Chen, M. Y., 2012. Visualization and dynamic evaluation model of corporate financial structure with self-organizing map and support vector regression. Applied Soft Computing. 12(8). pp.2274-2288.
- Epure, M., 2016. Benchmarking for routines and organizational knowledge: a managerial accounting approach with performance feedback. Journal of Productivity Analysis. 46(1). pp.87-107.
- Masood, O. and Ashraf, M., 2012. Bank-specific and macroeconomic profitability determinants of Islamic banks: The case of different countries. Qualitative Research in Financial Markets. 4(2/3). pp.255-268.
- Nitzl, C. and Chin, W. W., 2017. The case of partial least squares (PLS) path modeling in managerial accounting research. Journal of Management Control. 28(2). pp.137-156.
- Weygandt, J. J., Kimmel, P. D. and Kieso, D. E., 2015. Financial & managerial accounting. John Wiley & Sons.