Case Study: Global Hardwood Company - Essay Example

? GLOBAL HARDWOOD COMPANY CASE STUDY By Lecturer: of Affiliation: and Global Hardwood Company Case Study Introduction Global Hardwood Company (GHC) is an international company that operates in more than one country. The company began as a single-family business but it expanded and became a public limited establishment. The GHC is headquartered in an attractive marketplace within the town of the English Midlands. The GHC is a UK based conglomerate industry, which supplies a variety of decorative hardwoods from countries across the globe. It deals with a variety of imported hardwoods and unfinished state, mainly in the form of trimmed trees. The hardwoods are then processed into finished products, which are used for construction purposes and manufacturing of furniture. The GHC owns 100 percent of the RFC (Real Furniture Company); thus, FFC imports a wide range of hardwood and cane furniture, which are processed in overseas locations. FRC is a diversification of the GHC business that imports a range of hardwood and cane furniture from diverse countries within these regions. These varieties of furniture produced are mainly meant for domestic use. However, many customers of the company products are based in the countries such as the United Kingdom, North America, Australia, Middle East and parts of Europe. The company products are of high quality and are priced accordingly; hence enabling the company to increase their revenues. The financial aspects of GHC have been developed by the chief accountant of the company, who has been working in the company for more than 30 years. The chief an accountant has vast experience; hence, he has enabled the company to increase its revenues. The company converts their sales revenues, marketing costs, shipping costs and manufacturing costs into British pounds. Thus, the company has significantly improved because of varied opportunities achieved from outsourcing of hardwoods from different nations. The government also approached the individual supplier countries; thus offering high incentives to the company for sourcing the majority of their hardwood from their country. Question 1 Sound investment portfolio management is an effective contributor to financial stability and profitability of the company. In many companies, there are different departments and each of them deals with particular tasks or functions differently. These departments include the human resource management department, financial, marketing and many others; hence, these departments function differently or they are held responsible for the success of the company. GHC is among the international organizations that have improved their performance level because of the effective management practices across the departments. The financial aspects of the company have been developed by the chief accountant of the GHC, who have been playing significant roles in the company for a longer period. The chief accountant has vast experience and he is also responsible for financial directing activities in the company. Therefore, from the financial records aspects of GHC, the company has significantly improved its sales revenues from76, 835, in the year 2003 to 126, 467, in the year 2007. However, there are varied variations in terms of sales revenue by market and it seems that the sales revenue in the UK keeps decreasing steadily. It is only furniture division and RFC, which have been improving their sales revenues by product, but the construction division is experiencing steady decreases of sales revenue by product. However, the GHC Company experiences high profits, and this have continued to increase; this because the profits after the tax was 3, 702, in 2003 and this increased to 6,767, in 2007. The financial practices of the company possess varied risks, threats, shortcomings and inefficiencies towards smooth operation of the business. Fiscal practices of the Company sham a threat to the company because of deregulations in the financial markets. The new regulations and implementation of new financial products may create an impact on the market; thus, the new pattern will contribute to economic uncertainty and instability. The heavy tax imposed on the company activities is a great threat to the business because this will impact the performance of the company; hence hindering it from achieving successfully their business objectives. Lastly, the organization is likely to face some shortcomings in the future and this is in case their sales revenues by market will not be stabilized. Even though the sales revenue continues to increase, the variation of sales revenues by market is a big threat to the company. This is likely to impact the activities of the company; thus, it may contribute to the financial loss in the organization. It is recommendable for the company to carry out financial risk assessment by identifying vulnerabilities. This will enable the company to determine the best places for spending enough money in order to improve the financial markets. It is also recommendable for the company to carry out financial auditing and encourage the financial directors or accountant to offer efficiency financial accountability of the company. Elliott, Krische and Peecher (2010, p. 344) argues that financial accountability is essential in the company because it helps in maintaining an effective and strong financial control in the business environment. Lastly, providing financial reports and following the UK GAAP (Generally Accepted Accounting Principles) will enable them to reduce risks or misinterpretations, fraud and errors in the departmental financial processes in the company. Question 2 Prior to the issues that were identified in the recent developments and opportunities of the company, the overseas governments demands GHC to establish manufacturing, processing and finishing facilities form the individual supplier countries. This is because of the need to reduce the transportation costs of unfinished hardwood products, which increases the cost of production; thus contributing to increased pricing of hardwood products. Constructing the processing, manufacturing and finishing facilities in the host countries will contribute to successful performance and increase financial benefits to the company. This is because these facilities will enable the oversea companies to avoid other associated costs that they may encounter in the supply chain process. Apart from establishing manufacturing, processing and finishing facilities, the government expects GHC to outsource the company products; this is because outsourcing will offer a continuity level to the company while reducing the management risks. Outsourcing some of the company products will also contribute to the development of the internal staff because the project will bring people with the necessary skills required for designing new and upgrading equipment. The GHC might in turn request some aspects from the host governments that will enable both supplier companies and GHC to operate their business successfully; thus increasing the business performance level. One of the aspects is providing incentives to GHC in order to enable them source the majority of their hardwood from the host countries. Sourcing the firm products will contribute to prompt development and expansion of the company. Outsourcing will reduce production costs and contribute to efficiency savings. This is because GHC will enable the overseas companies to perform better at a consistent and reasonable cost. It will also reduce overhead costs of performing a certain back-office tasks, which are extremely, time consuming and costly. Thus, outsourcing those back-office tasks will contribute to smooth business performance; thus contributing to increased organizational performance level. Additionally, GHC will expect the host governments to break the tax system that they impose on the GHC hardwood products. This is because the company products are taxed heavily; thus breaking this kind of tax will enable the company to make job-creating investments in overseas. One way through which the tax system can be broken is through encouraging and rewarding the GHC; thus enabling them to be highly profitable. This perverse incentive system roots from the features of tax system known as deferral, whereby the company can pay taxes for their domestic profits yearly. Deferral is an effective tax system because the foreign profits can compound free of UK tax where the company is established until they are repatriated. This is crucial because different treatment between the foreign and domestic profits will enable the company to experience attractive investments. Question 3 Assessing risks associated with any foreign inward investments involves looking back into background of the issue including the current financial statements of an entity, which issues bonds or stocks. This is crucial because this makes it possible for the company directors to determine whether the backing of their assets is solid or in case there are necessary financial issues that need to be addressed. Moreover, the company can carry out financial investigations to determine the past performance of their assets; since this can help investors to understand the way assets have performed in varied markets. By understanding the past financial performance markets, it will be easier for the company to project the way their assets will perform in the future. This is vital because it will enable the company to manage any risks that may impact the future performance of the company; thus contributing to increased inward investments. Steffan (2008, p. 56) argues that assessing any risk associated with inward investment is vital because it enables the company to manage their business effectively. Thus, assessing the risks means that the company is trying to look closely to the varied activities or things that are happening in the host countries. This is vital because it will be enable them to determine in case companies in the host countries are performing well or determine those risks that may impact them from achieving the organizational goals effectively. In case the evidence reveals that the host countries’ economy is about to encounter economic depression, care or risk management practices should be implemented for mitigating or controlling some risks. It can also enable the company to determine the extent to which the impact can create change or alter the value of the inward investment opportunity (Hand and Green 2011, p. 22). The company can make decisions in case the economy in the host nation will last for long and create a detrimental impact on the inward investment; thus, it can help them to find better solutions for improving their business performance. Another recommendation is structuring the financial departments and implements policies that should be followed in managing financial aspects of the company. The global hardwood company can set standards, which should be followed in the business process. They should agree with the host governments upon such regulatory and filing requirements, which many include information on the shareholders and directors. The company should also maintain accounting records and file annual financial records. This is crucial because the accounting records will act as a basis for evaluation of the company’s performance level; thus enabling the company to achieve their business objectives effectively (Palmon and Yezegel 2012, p.622). Question 4 Chief accountant and group treasures play significant roles in the determinant of finance in any organization. However, the roles played by both of them differ somehow, but they both contribute to the success and wellbeing of organizational performance. Sielaff (2011, p. 123) argues that the role of treasurers have changed from the traditional accounting roles of securing funds to modern roles to managing financial risks of the company;; thus contributing to the overall objectives of the company. Thus, the following are varied responsibilities proposed for group treasurer in the Global Hardwood Company. First, the group treasurer will refer to the financial director and focus on the financing tasks and its related tasks in the company. The group treasurer will always deal with aspects of liquid assets of the company; thus, he or she will handle cash and liquid assets. However, the group treasurer can perform other tasks in the company. One of them is formulating the whole process of capital structure in accordance to the company objectives. He or she also can manage the total liquid assets of the company and all different cash types. Moreover, the group accountant can perform the role of a cashier by keeping the company cash and managing the overall credit function in the company. The group treasurer can implement the policies regarding the use of vendor payment or make decision on trading discounts. Lastly, the group treasurer can be responsible for authority signatory in case any payment in form of cheques is made, or he or she can sign the cheque on behalf of the company for cash approval. Leauby and Wentzel (2012, p. 15) argue that the accountants should link management accounting and finance in order to enable them meet the demanding needs of the company effectively. Therefore, in this case, the chief accountant will play significant roles in the Global Hardwood Company. One of their roles is to manage staff accountants, relate the organizational services to the financial reporting as well as, carry out transactional accounting of the company. The chief accountant in the company will be responsible for analyzing and understanding financial information of the company. Thus, he or she will have significant skills for analyzing and monitoring financial activities in the company in order to enable the company to achieve their organizational goals effectively. The chief accountant should be held responsible for the main operations or activities in the financial or accounting departments; thus this is a position for carrying out financial planning, consulting and directing (Chen, Tan and Wang 2013, p.71). Lastly, the chief accountant should work closely with other accounting bodies including the financial accounting standards board, auditors, consultants, investors and many others. Thus, he or she should apply accounting standards to offer effective financial disclosure vital for achieving organizational goals. Conclusion The researcher began with an introduction, which provided the overview of the Global Hardwood Company. The researcher revealed the way the GHC organization began as a family business, and it expanded and became a public limited company. In the discussion part, the author discussed varied questions by connecting them to the case studies. First, the author provided a report on the current financial practices and attempted to reveal the way the company has significantly improved its sales revenue from76, 835, in the year 2003 to 126, 467, in the year 2007. The risks, threats, problems and inefficiencies were also identified; thus, recommendations were proposed to solve such issues. For instance, it was recommendable that the company should carry out financial risk assessment by identifying vulnerabilities vital for improving financial markets. The author provided a report on the identified issues in the recent organizational developments and opportunities. The author provided structured recommendations for examining risks associated with inward investment. For instance, the author suggested that the company can carry out financial investigations to determine the past performance of their assets; since this can help investors to understand the way assets have performed in varied markets. Lastly, the researcher proposed varied responsibilities for both group treasurer and chief accountant in the company. The role of chief accountant that was proposed included planning, coordinating directing and being held responsible for the main operations in the financial or accounting departments. The proposed roles for the group treasurer included analyzing financial information of the company, monitoring financial activities in the company, acts as the role of a cashier and many other significant roles. Bibliography Choi, F. D. S. 2003, International finance and accounting handbook. Hoboken, N.J: J. Wiley. =Chen, W, Tan, H, & Wang, E 2013, 'Fair Value Accounting and Managers' Hedging Decisions', Journal of Accounting Research, 51, 1, pp. 67-103. Cullen, J. B., & Parboteeah, P. 2009, International Business: Strategy and the Multinational Company. Routledge. 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The finance and accounting desktop guide: Accounting literacy for the non- financial manager. London: Thorogood. Steffan, B. (2008). Essential Management Accounting : How to Maximize Profit and Boost Financial Performance. Kogan Page. Sielaff, V. 2011, Accounting in Finance: an accounting-based analysis of IFRS and US-GAAP in capital markets. Read More