Financial Management For Global Decision Assignment Sample

Introduction Of The Financial Management For Global Decision

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Part 1:

Analysis of the accounts: Ratio analysis and critically discuss

Profitability identification

NP profitability ratio of smith construction is identified growth of net profit in 2020 12.04 percentage because of less cost consumption in this year. Additionally, NP margin of smith construction for the year 2021 has presented 11.86%, continuous trend of profitability has been possible by revenue growth (Pando, 2019). GP margin cloth in 2020 has been identified 10.83% can become possible because of increment GP profit by adopting Cost management policies. Trend of growth has decreased in 2021 -2.57% because growth of revenue is not similar to gross profit. [Refer to Appendix 1]

Liquidity identification

Financial accounts growth and deficit identification has been contacted through ratio analysis that is going to present profitability, liquidity, solvency and efficiency. Previous years financial performance of Smith Construction is going to be delivered 3 years financial flexibility and stability (Daryanto et al.2021). Current ratio trend has declined in those years because of increasing current liabilities with huge volume. Quick ratio trend improvised by positive growth of inventory volume (Brambilla et al. 2018). Due to lack of working capital provision operations produce business liquidity and affect to continue business. [Refer to Appendix 2]

Solvency identification

Growth of solvency ratio has been calculated negative that has been raised because of Increasing equity financing. Financial ratio aspect has provided information about how Smith construction has faced financial losses in 2020. the working capital ratio of smith construction has been reduced because of growth in current assets compared to current liabilities. Using equity financing for business operations Smith construction has lost ownership in this business. [Refer to Appendix 3]

Efficiency identification

Efficiency ratio calculation based on previous financial reports has indicated the financial year 2020-21 asset turnover ratio has been developed due to increasing total asset volume. Simultaneously inventory turnover ratio increased in 2021 because of sufficient inventory available for business operation. Assets turnover ratio has presented financial year 2021 it has been increased due to fall in sales volume, whereas in 2021 it has been changed to positive because of better revenue volume. Less inventory turnover ratio of FY 2019 and 2021 improvise working capital amount of Smith construction. FY 2020 increasing turnover period created issues to managing working capital and it reflect as long credit period for debtors. [Refer to Appendix 4]

Part 2:

Discussion of misappropriation and identification of weak areas of internal control

Internal control of Smith construction is oriented with over consumption of equity financing rather than focusing on external debts. As opined by Wijaya and Yudawisastra, (2019), using equity financing financial resources reduce ownership percentage in this organization and most of the equity holders' expected distribution of profitability reduces generation of further financial resources. Investing heavily in marketing activities has consumed maximum financial resources that reduce productivity of this organization and also increase average cost of production.

Inherent weakness of business planning has been identified over allocation of financial resources for marketing activities, where Smith construction has gone through lack of financial resources for other business operations (Sucipto and Chasanah, 2019). Financial ratio aspect has provided information about how Smith construction has faced financial losses in 2020. Selling of 60,000 of each of shareholdings in November 2021 for a price of £3 per share has reduced ownership in this organization and also overvalued company valuation investors.

Profitability of this business has a positive trend however it has been falling down because of less demand for productivity in the market. Considering this scenario internal control of this organization has been disturbed because of less focus on productivity rather than trying to arrange financial resource provision operations. Financial ratio aspect has provided information about how Smith construction has faced financial losses in 2020. Cited by Miransyah and Dempo, (2021), marketing activities required sufficient funds to tackle a competitive market where Smith constructed using financial resources to grow managerial activities other than calculating actual output of the business (Wijaya and Yudawisastra, 2019). Profitability ratio has been distracted because of lack of growth in revenue when also increasing cost of capital impacted adverbs on profitability.

Current assets volume decreased in the last 3 years reducing the quantity of smith construction to impact financial liquidity and stability. Quick ratio has been disrupted in the last 3 years because of increasing inventory levels at the end of the financial year that indicate organization revenue has decreased. According to Suciati et al. (2021), the working capital ratio of smith construction has been reduced because of growth in current assets compared to current liabilities. Increasing financial bird in construction delivered lack of productivity in this organization and it is used to maintain sufficient amounts of working capital for business operations.

Working capital margin of smith construction affected the use of a huge amount of equity financing transferred to another person. Increase in equity value of Smith construction increases valuation of this organization however liquidity of this organization has not been improvised through valuation increment. Opined by Mayya, (2022), efficiency and solvency ratio has been affected by losing ownership of smith Construction by selling equity. turnover ratio has been affected in 2020 due to holding inventory more than requirement that impacted as lack of financial flexibility to continue business.

Part 3:

Review of the sources of finance

Source of finance for a business organization is still pending on its requirement and possible impact on the organization. Based on the case study of smith construction wants to arrange £250,000 funding for the business growth corporation market. Banking loan for investors approach this organization has different advantages and disadvantages that it is going to point out to understanding which option would be better for Smith construction.

Bank loans

Advantages

Funding in business operations through banking loan advantages regarding maintaining the same equity holding in Smith construction. Through equity funding organization would transfer its equity to investors whereas a banking loan would not affect equity. Considering banking loans for business operations would not disturb business decisions and processes that help directors make decisions according to their future goals. No collateral requirement is required for banking laws that help to gain financial flexibility in business (Syarifah, 2021). The installment payment system helps to gain financial benefits to operations that reduce the financial burden of this organization within a certain time period.

Disadvantages

Arranging a banking loan for business operation requires efficient paperwork and time that could harm business activity at the initial stage. Banking loans for an organization have been allocated depending on financial strength and future possibilities of growth. Interest rate percentage acts as a financial burden for an organization, where Smith Construction would face financial burden for a certain period of time that could harm its profitability in future by deduction of interest expenditure (Agusta and Hati, 2018). Smith construction has challenges to maintain cost of operations due to over consumption of current debts, where additional banking loans would be impacted as the most financial burden for this organization.

Equity financing

Advantages

Equity financing for Smith construction would be effective because this organization is not going to consume a type of expenditure for equity financing. Additionally, equity financing would increase financial resources for operational activity that is going to help future operations for making profit. Equity financing through investors is going to help Smith Construction by improvisation of financial flexibility and gain advantages managing operations. Organizational administrative and marketing activities consume a major portion of financial resources, where equity financing works effectively provide adequate resources for the growth of business operations.

Disadvantages

Arranging funds through investors management of Smith construction needs to transfer equity to investors. Transferring shares of it cost action to investors to handle different types of decision making based on investors' approach. Manipulation of investors taking decisions about business operations would be disrupted and leads to less profitability growth in future business activities.

Investment in Smith construction would consume a certain percentage of profitability needed to share to investors that reduce profitability of this organization. Sharing of equity to investors would reduce financial flexibility because of losing profitability percentage and dividend payout for each financial year. Using equity Financing would reduce cost consumption by improvisation of financial freedom to this organization. However, it would have an effect on decision making activities for these organizational activities.

Recommendation along with justification

Identification of justified financial resources for Smith construction would be useful to gain financial resource arrangement. Presenting knowledge about the advantages and disadvantages of Banking loans and equity financing indicate both financial resources are going to impact this organization in different ways. Considering banking loan financial resources Smith construction is going to consume a certain amount of interest expenditure organization profitability or face loss.

Equity financing by investors in Smith construction to continue business operation without any financial burden because of loss or profitability of future business operation would be distributed to investors as per equity percentage. Using banking loans for financial activities consume interest expenditure, whereas equity financing would not consume that type of expenditure which is going to provide advantage to Smith construction. Transferring shares of it cost action to investors to handle different types of decision making based on investors' approach. Investors' approach to this organization manipulates business operations and activities where banking loans would not menu plate business activity that helps Smith Construction for future growth.

Identification of suitable financial resources for Smith Construction would be using banking loans as 45% financial resource requirement and the remaining 55% financial resource should be arranged by inventor's participation. a 45% financial resource as a banking loan installment payment system helps to gain financial benefits to operations that reduce the financial burden of this organization within a certain time period that's going to impact slightly on profitability. Another option 55% of financial resources would be arranged by investors that is going to reduce risk of business operation to gain ultimate output. According to the financial resource Management process Smith Construction needs to adopt both financial resources to manage balance between risk and reward gain in future business operations.

Reference list

• Agusta, R.F. and Hati, S.W., 2018. Calculation of liquidity, solvency and profitability ratio in manufacturing company. Journal of Applied Accounting and Taxation, 3(2), pp.110-116.
• Brambilla, A., Bonvin, J., Flourentzou, F. and Jusselme, T., 2018. Life cycle efficiency ratio: A new performance indicator for a life cycle driven approach to evaluate the potential of ventilative cooling and thermal inertia. Energy and Buildings, 163, pp.22-33.
• Daryanto, W.M., Maharani, A.P. and Wiradjaja, N., 2021. Profitability Ratio Analysis Before and During Covid-19: Case Study in PT Japfa Comfeed Indonesia. Life, 8, p.30.
• Mayya, S.R., 2022. Performance Evaluation of Dabur India Ltd through Profitability Ratio Analysis: A Case Study. International Journal of Case Studies in Business, IT and Education (IJCSBE), 6(1), pp.387-400.
• Miransyah, G.G. and Dempo, S.R.S., 2021. Profitability Ratio Analysis at PT. Medikaloka Hermina, TBK. BINA BANGSA INTERNATIONAL JOURNAL OF BUSINESS AND MANAGEMENT, 1(1), pp.60-67.
• Pando, V., San-Jose, L.A. and Sicilia, J., 2019. Profitability ratio maximization in an inventory model with stock-dependent demand rate and non-linear holding cost. Applied Mathematical Modelling, 66, pp.643-661.
• Suciati, R., Marlina, M., Rialmi, Z. and Nastiti, H., 2021. Relationship Analysis of Capital Structure and Profitability Ratio in Trade Sector Companies in Indonesia. Journal of Accounting and Finance Management, 2(1), pp.9-29.
• Sucipto, A. and Chasanah, N., 2019. Effect Of Liquidity Ratio, Profitability, And Solvency On Stock Returns With Capital Structure As An Intervening Variable (Study On Food And Beverage Sub Sector Listed In Indonesia Stock Exchange (Idx) Period 2013-2017). Ekspektra: Jurnal Bisnis dan Manajemen, 3(1), pp.52-68.
• Syarifah, S., 2021. Effect of Earnings Management, Liquidity Ratio, Solvency Ratio and Ratio Profitability of Bond Ratings in Manufacturing:(Case Study Sub-Sector Property and Real Estate Sector Companies listed on the Indonesia Stock Exchange (IDX)). International Journal of Business, Economics, and Social Development, 2(2), pp.89-97.
• Wijaya, J.H. and Yudawisastra, H.G., 2019. Influence of capital adequacy ratio, net interest margin and liquidity ratio against profitability ratio. International Journal of Innovation, Creativity and Change, 6(6).
• Wijaya, J.H. and Yudawisastra, H.G., 2019. Influence of capital adequacy ratio, net interest margin and liquidity ratio against profitability ratio. International Journal of Innovation, Creativity and Change, 6(6).