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Implementing Strategic Resource Management

INTRODUCTION

Strategic management is a concept for formulating and implementing strategies to reduce issues occur at workplace. In this regarding improving effectiveness of entity by following overall strategic plans. The present report is based on understanding strategic resource management tools of Samsung Plc. It is public limited wide spread organization of UK that provide electronic items to million customers. However, financial data and information analysis for analyzing current organization's performance can be described. In accordance to this, critical evaluation on collected data for strategic planning procedure and decreasing risks occur at enterprise is to be expressed. Moreover, financial statements' interpretation to present economic position of firm including ratio analysis and fund/cash flow statement. Along with this, cash flow management and balancing expenditure for business operations is to determined. Thus, capital expenditure appraisal for further investment to purchase new machinery equipment can be expressed. Hence, proper strategic management and planning for entity's increasing efficiency is to understood through this assignment.

TASK 1

1.1 Financial statement analysis

Financial statements including income statement, profit and loss account, balance sheet, fund/cash flow statements are analyzed. On the basis of which, various tools and techniques are created enhancing profitability of firm at high level (Brewster and et.al., 2016). In  this regard, finance department's manager recognizes last years' business performance regarding incurred expenses and gained revenue that presents profit earning capacity of entity. Moreover, different statements are identified through data interpretation and evaluating ratios related to profitability and liquidity. In this process, economic growth of firm is obtained and varieties of ideas are created for effective business management. However, statements' analysis is beneficial for accomplishing tasks and increasing efficiencies of organization at high level (Edelman and et. al., 2016). By comparing last two years' business performance, systematic strategic planning procedure is created for decision making and implementing strategies. Thus, financial statement analysis is useful for economic stability and improving monetary profile of organization at large scale through implementing different strategies.

Go through this sample: Managing Finance in Public sector

1.2 Ratio analysis

 

2014

2015

Net profit

23082499

18694628

Net sales

206205987

200653482

Net profit ratio

0.111939

0.0931687

 

 

 

Current assets

115146026

124814725

Current liability

52013913

50502909

Current ratio

2.2137543

2.4714363

 

 

 

Debt 

1379871

1424046

Equity

162181725

172876767

Debt equity ratio

0.0085082

0.0082373

 

Financial manager of organization determines these ratio to present financial performance of entity. In this regard, for evaluating liquidity and debt equity data of 2014 and 2015 are analyzed. In which, current ratio for 2014 was 2.21 while in 2015, it raised as 2.47. Therefore, it is determined entity has enough liquidity and cash for further investment as well it will be useful for further implementation. In addition to this, debt equity ratio was 0.0085 which decreases in 2015 to 0.0082. Therefore, it can be forecast that in further years, organization can improve its profit earning capacity and proper management of all business operations can be gained efficiently. Thus, in future time, entity can develop its efficiencies and quality services at high level.

1.3 Recommendations related to financial statement interpretation

Finance department manager recognizes financial statement through ratio analysis and presenting economic performance at high level. it is determined that entity can improve its profit earning capability and quality services in future time for better work performance. However, it is interrelated with strategic planning and decision making process to enhance quality services at high level.

 

TASK 2

2.1 Impact of creative accounting techniques when making strategic decisions

Creative accounting is a system to manage balance sheet. It provides different guidelines and instructions for operating business activities related to incurring expenditures and gaining revenue. However, proper balance between expenses and income is achieved through this process. On the basis of its evaluation, strategic decisions are taken for implementing quality services and efficiencies of firm at high level (Donovan, 2016). Moreover, creative accounting components are important for preparing planning procedure and making decisions regarding business activities. In addition to this, through using creative accounting tools, ideas are created for creations and innovations in business operation. Thereby, decisions are made efficiently and systematic estimation for planning procedure is obtained. However, it impacts on strategic management and decision making tools for financial management as well increasing efficiencies in future time. Along with this, decision making process can be proceed for implementing business and competitive strategies that is helpful for financial development and improving business performance to operate business activities. Moreover, auditors analyzes entire activities and business management that is helpful for transferring information related to expenditure and income. Along with this, trading skills and its account is managed thoroughly that impacts on strategic decision making process. Thus, creative accounting is beneficial for effective goodwill of organization as well managing inventories efficiently.

2.2 Limitations of ratio analysis tools

Ratio analysis is a financial component that is helpful to identify financial performance of organization. Through this technique, comparison between last years' performance to present year is created that impacts on organization's effectiveness. In addition to this, overall business operations are analyzed through profitability, liquidity and debt equity ratios. Therefore, proper entity's performance is obtained as well several ideas are created for operating business activities in future time. As per critical evaluation, it is evaluated that ratio analysis is unable due to wrong predictions over business operations. In accordance to this, inaccurate data interpretation is difficult to set appropriate planning procedure and making decisions for strategic management. Including this, occurrence of uncertain problems are not suitable for further business operations. Moreover, it is difficult to analyze overall business activities as well determining so many ratios that affects on financial performance of entity. Hence, it is required for manager of organization to apply ratio analysis technique for identifying financial statements and making further decisions related to business operations in future time (Ball  and et. al., 2015).

2.3 Significance of cash flow management when evaluating proposals for capital expenditures

Cash flow is an approach for evaluating difference between outflows and inflows. In this process, incurred expenditures and gained revenue are recognized for further investment and getting sources to funding. It is significant for preparing strategies and making decisions related to further implementation and enhancing its efficiencies for proper financial development. In addition to this, financial position of organization is recognized that leads to create different ideas that is helpful to enhance profitability of organization at high level. In addition to this, capital expenditures are related to incurring expenses to operate further business activities are determined. However, cash flow management is useful for evaluating proposals for capital expenditures (Verschoor, 2015). Thus, cash flow management is crucial for implementing strategies and increasing quality services for further business operations as well increasing revenue for profitability.

 

TASK 3

3.1 Capital expenditure appraisal

Many-times, company has to put huge investment in the capital projects like for acquisition of new machinery for the technological success, geographical expansion and others. Such projects require large sum of money and bigger risky for the firm. Therefore, it seems essential for the companies to examine the risk associated with the every investment alternative and thereafter select the best course of action to derive greater yield (Catita and et. al., 2014). According to the stated case, there are two alternatives available to the Samsung Plc that is either to replace the old machinery and purchase the new ones. If old machinery is replaced then it will receive a part time allowance of 120,000GBP. There are number of methods available to the business for making the best investment decisions that are applied here as under:

Cash flow: Payback period, net present value and internal rate of return (examined below) considers net cash flow for the project appraisal and evaluation purpose, whilst, accounting rate of return measure the profitability of the project by considering the accounting return.

 

Table 1: Calculation of initial investment

 

Replacement decisions

Purchase

Initial investment

220000

220000

Less: Part time allowance

120000

 

Initial investment

100000

220000

 

Table 2: Calculation of profitability and cash flows under replacement option

Year

1

2

3

Number of units

90000

50000

30000

Selling price

5

5

5

Cash inflow

450000

250000

150000

Less: expenditures

 

 

 

Direct material

162000

94500

59535

Direct labor

67500

39375

24806.25

Variable overheads

40500

22500

13500

Repair & maintenance

7000

7000

7000

Depreciation

31500

17500

10500

Total expenditures

308500

180875

115341.25

Profitability

141500

69125

34658.75

Add: depreciation

31500

17500

10500

Cash flows

173000

86625

45158.75

 

 Table 3: Calculation of profitability and cash flows under purchase option

Year

1

2

3

Number of units

90000

50000

30000

Selling price

5

5

5

Cash inflow

450000

250000

150000

Less: expenditures

 

 

 

Direct material

162000

94500

59535

Direct labor

54000

31500

19845

Variable overheads

27000

15000

9000

Repair & maintenance

1000

1000

1000

depreciation

49500

27500

16500

Total expenditures 

293500

169500

105880

Profitability

156500

80500

44120

Add: Depreciation

49500

27500

16500

Add: Residual value

 

 

75000

Cash flows

206000

108000

135620

Non-discounted/traditional methods

Payback period: This is a non-discounted method which is useful for the risk averse investors to find out the time length which the project will take to recover the beginning outlay (Stanley and et. al., 2013). Shorter the duration is founded attractive for the investor or vice-versa.

 

Table 4: Calculation of payback period under replacement

Year

Cash flows

Cumulative cash flows

Beginning investment

-100000

-100000

1

173000

73000

2

86625

159625

3

45158.75

204783.75

Payback period = 100,000/173,000

= 0.58 year

= 0.58*12 = 7 months

 

Table 5: Calculation of payback period under buying option

Year

Cash flows

Cumulative cash flows

Beginning investment

-220000

-220000

1

206000

-14000

2

108000

94000

3

135620+75000 = 210,620

304,620

Payback period = 1 year + (14,000/108,000)

= 1.13 year OR

= 1 year 1.5 month

Interpretations:

After deriving the output, it is considered better to advice Samsung Plc to replace their old machinery costing worth 260,000GBP by the newer ones costing 220,000GBP at a part-time allowance of 120,000 because by this, the beginning outflow of 100,000GBP can be generated in 7 months only. In contrast, purchase of machine will require a time of 1.5 month which is comparatively greater.

Accounting rate of return: It aims at measuring the return of the project by making evaluation of the net return or profit, so as to assess that whether Samsung Plc will be able to meet out their shareholders expectations regarding return or not (Baker and Riddick, 2013).

Accounting rate of return (ARR): Average annual accounting profitability/Average investment

Average return = Total profitability/Number of years

Average investment = (Initial investment + scrap/residual value)/2

 

Table 6: Calculation of ARR under replacement option

Year

Profitability

1

141500

2

69125

3

34658.75

Total

245283.75

ARR = 245.283.75/3/(100,000+0)/2*100

= 81,761.25/50,000*100

= 40.88%

 

Table 7: Calculation of ARR under buying option

Year

Profitability

1

156500

2

80500

3

44120

Total

281120

ARR = 281,120/3/(220,000+75,000)/2*100

= 93,705.67/(295,000/2)*100

= 93,705.67/147,500*100

= 15.88%

Interpretations:

As per the results, it can be seen that the replacement option has greater ARR to 40.88% in comparison to the purchase option as it was derived to 15.88%. It showcase that Samsung Plc must replace their old machinery to take benefits of new technologies.

Discounted/modern techniques:

Net present value: It is a discounted technique which believes that time value of the currency must be considered while measuring the viability and feasibility of any project (Gelman and et.al., 2014). This method discounts the cash inflows at an appropriate discounting factor and subtracts from the initial outlay to find out the net return.

Internal rate of return: This technique just find out the rate which equates the present value of potential cash inflows to the current investment or beginning outlay required.Higher the IRR of a project looked attractive and viable.

 

Table 8: Calculation of net present value &IRR under replacement option

Year

Cash flows

Discounted value of 1GBP @ 15%

Discounted cash flows

Beginning outlay

-100,000

 

 

1

173000

0.8696

150434.7826

2

86625

0.7561

65500.94518

3

45158.75

0.6575

29692.61116

IRR

121%

 

 

Total discounted cash inflows

245628.3389

Less: Beginning investment

100000

Net present value

145628.3389

 

Table 9: Calculation of net present value & IRR under purchase option

Year

Cash flows

Discounted value of 1GBP @ 15%

Discounted cash flows

Beginning outlay

-220,000

 

 

1

206000

0.8696

179130.43

2

108000

0.7561

81663.52

3

135620+75000 = 210,620

0.6575

138486.07

IRR

68%

 

 

Total discounted cash inflows

399,280.02

Less: Beginning investment

220,000

Net present value

179,280.02

 

Interpretations:

Although PBP and ARR are founded greater in replacement option and IRR is also computed to 121% which considers 1st option as more feasible. However, on the other side, NPV which is the best method of assessing project feasibility suggests Samsung Plc to buy the new machinery because its NPV is 179,280.02 above the NPV under replacement option to 145,628.34. Therefore, it is founded better to recommend the company to replace the old machinery at a part-time allowance of 120,000 for the acquisition of the new machine costing worth 220,000GBP so as to get a return of 179,280.02. 

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CONCLUSION

The report is concluded that strategic resource management is useful for effectiveness of business organization. In this regard, importance of financial data and information analysis is described. However, risk analysis and several techniques to reduce them are determined. Moreover, significance of strategic planning procedure and decision making tools are considered for effectiveness of Samsung Plc. Along with this, ratio and analysis and data interpretation is recognized to present financial position of entity that leads to prepare strategic plans for further years' implementation. Therefore, through this project report, impact of cash-flow management is determined for adequate funding and enhancing profit earning capability of firm. However, creative accounting techniques are presented for strategic decision making and preparing action plans for entity's effectiveness. Along with this, capital expenditure techniques are presented for choosing best adequate project planning related to enhancing profitability of organization effectively through this assignment. Thus, importance of strategic resource management is identified for proper allocation and management of fund related to increasing efficiencies of entity.

REFERENCE

Books and Journals

  • Baker, H.K. and Riddick, L.A., 2013. International finance: a survey. Oxford University Press.
  • Ball, R. and et. al., 2015. Deflating profitability. Journal of Financial Economics. 117(2). pp. 225-248.
  • Brewster, C. and et.al., 2016. New Challenges for European Resource Management. Springer.
  • Catita, C. and et. al., 2014. Extending solar potential analysis in buildings to vertical facades. Computers & Geosciences. 66(2).pp. 1-12.
  • Donovan, R., 2016. Impactful written communication: information has value only if it drives action. Strategic Finance. 97(10). pp. 19-21.
  • Edelman, B. and et. al., 2016. To groupon or not to groupon: The profitability of deep discounts. Marketing Letters. 27(1). pp. 39-53.
  • Gelman, A. and et. al., 2014. Bayesian data analysis.  Boca Raton, FL, USA: Chapman & Hall/CRC.
  • Stanley, D.J. And et. al., 2013. The efficient market hypothesis: the applicability of quantitative methods to foreign stocks traded as American depository receipts (ADRs). International Journal of Entrepreneurship and Small Business. 19(3). pp. 293-308.
  • Uechi, L. and et. al., 2015. Sector dominance ratio analysis of financial markets. Physica A: Statistical Mechanics and its Applications. 42(1). pp. 488-509.
  • Verschoor, C.C., 2015. Too big to jail? Banks and financial companies are being prosecuted and penalized for large-scale frauds and unethical actions, but the people behind these events still aren't facing jail time. Strategic Finance. 97(4). pp. 16-18.
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