The Effect of the Systems Insurance Agency - Essay Example

Financial analysis 6.0 Financial analysis This section will competently involve financial analysis of the SYSPRO software implementation alongside the effect of the systems insurance agency at large. To sufficiently and efficiently carry out the analysis, four vital statements of information namely balance sheet, a start-up budget, income and expense statements are provided. The financial projections are made after the analysis of the historical data that is at hand. The systems insurance agency has made a sound decision of venturing into a new business operation. The primary objective of such a commendable move is to increase the shareholders wealth and the market share of the company. 6.1 Start –up budget The global systems insurance agency start-up budget was $2,345,000 which entails four critical sections that must be available for the implementation process of the project. Employees and payroll taxes amounted to $1,600,000 under administration costs. The start up of this sophisticated business project called for different kinds of skills and expertise in the field of technology to enable the implementation of this project successful. Their efforts and sacrifice of their time were compensated in monetary value. The computers, repairs, services, maintenance and depreciation accumulated to a cost of $98,000. Due to unfavorable conditions that some computers were in, more computers were purchased and upgraded to improve technology of the SYPRO softwares. Their implementation cost was $597,000 which was broken into specifications of online software cost $500000, testing cost $60,000, training cost $25000, and SYPRO support $12000. In the standard preparation of budgets, there is always a provision for miscellaneous expenses that might be incurred and, therefore, a total of $50,000 was catered for these expenditures. The above costs were only budgeted for the beginning year of 2014. The figure below shows the start up Budget for the first year. Figure 1 Startup Budget 6.2 Income and Expense statements Our respective income and expense statements replicate our financial positions of a year before the implementation of the SYSPRO software. They also clearly show a year prior to the implementation and the financial positions of the three years to come. It should be known that the projection of the future financial positions of subsequent years was based on the present performance data for financial analysis. For an efficient and sufficient implementation of the SYSPRO softwares, an ample start-up capital is required for the research and development expenses. Our initial capital for the SYSPRO implementation was $597,700. The implementation costs scaled down in subsequent years from 2015 to 2017. For ample operations of our company, a request for all SYSPRO support was necessary. The cost was to decrease from $11000 to $10000 then to $9000 in the following three financial years. The company was expected to grow significantly by an enhancement of the total revenue. The company reported revenue of $32,900,000 in 2013; the total revenue improved to $34,875,040 in the year 2014. From computation, this is an increase of (+6%). From this data, it is projected that the revenue will continue to grow. The revenue is expected to rise by 0.36% in 2015, 1.28% in 2016 and 1.34% in the year 2017. The increase in the total income was anticipated because the systems insurance agency company had potential of growing in size and market share in its preferred size market. This stipulates that systems insurance is one of the largest global insurance agencies of any full-service life insurance companies. This growth within this division is good news for the firm and prospective investors. One of major contributor to the growth is the premiums that were being paid by clients towards their insurance covers. This growth is aligning with the SYSPRO software upgrades hence increase in the shareholders value, growth of the company and generation of higher profits. This will can enhance the public image of the enterprise and consequently attract many investors. Another essential item in the income and expense statements projections that can attract the investors is that the company was projecting to decrease the spending in the future significantly. From the data, total equipment expenses dropped by 6.89% in 2015, 2.11% in 2016 and 2.38% in 2017. The expenses such as salaries and wages, payroll taxes and miscellaneous expenses increased insignificantly. The company through miscellaneous expenses was to allocate about $3,000,000 for the purpose of marketing and development. This was meant to increase the productivity and efficiency of operations within the company. This is also good news for the enthusiastic and potential investors as indeed the company still has some handsome plans for future growth and does not incur significant new costs. The figure below shows the income and expense statement projects from the year 2014 to 2017. Figure 2 income and expenses statements projections 6.3 Balance sheet Our balance sheet displays the financial position of our company from fiscal year 2014 to the fiscal year of 2017. The balance sheet undoubtedly shows what we own and possess at different financial years. The balance sheet also, on the other hand, stipulates what we owe others. What we own is termed as assets and what we owe others is termed as liabilities. The balance sheet is one of the valuable financial information that stakeholders such as the banks to loan the agency, customers for their services, the government aiming for taxes and adherence to the rules and regulations, creditors to lend the company with goods on credit, and the general public. From the data available in the balance sheet, our company assets have continued to grow in due course. This is attributable to stabilization of the economy and operational strategies that were put in place by the management and diversifying projects. Although there had been an increase in the total assets for respective years, the total liabilities of the company increased too ultimately. The growth of debt is due to financing other activities of the enterprise. The balance sheet speaks to the investors the issues concerning our company such as insolvency. Though there was an increase in the liabilities even as there was an increase in the total assets, the debt to asset ratio was 15.33% in 2013, 14.18% in 2014, 13.61% in 2015, 13.159% in 2016 and 12.80% by 2017. This shows that the company is insignificantly relying on the debt to finance its activities and operations and has low-risk amount. Another notable item from our balance sheet is intangible assets. The intangible assets are projected to increase from one year to another because of the stability, efficiency in the operations and provision of quality services to the customers/clients. From the balance sheet, the intangible assets increased by 26.92% in the year 2014, 5.18% in 2015, 7.75% in 2016 and 4.56% by 2017. This shows that there is a scale up of the intangible assets hence attracting the investors. The other vital item of concern by the investors is the owner’s equity that was projected to increase over time. From the data available in the balance sheet, the owner’s equity increase from $16M in 2013 to $16.4M in 2014, then to 16.7M in 2015, 17M in 2016 and finally 17.2M. This can be computed in terms of percentages increase of 1.83%, 1.80% and 1.18% in the year 2015, 2016 and 2017 respectively. Investors are also interested in the company’s current ratio to know whether the business is capable of paying its debts when they happen to fall due or not. From the balance sheet projection, the current ratios for respective years are 28.38% in the year 2013, 26.21% in the year 2014, 25.24% in the year 2015, 24.34% in the year 2016 and 23.62% in the year 2017. The figure below shows the balance sheet projection of our company from the year 2015 to 2017. From this data, it is known that the corporation’s inability to owner its financial obligations when they fall due is minimal this is evidenced by small percentage liabilities to assets. When making a sound decision whether to either invest in our company or not, the idea that one should bear in the mind of an investor is the fact that the business is still new in its operations and therefore requires some time before they fully realize their high returns when they make a decision of investing in the enterprise. When investing in such information systems insurance company, the investors should be aware of the new implemented rules and regulations as a matter of fact; ignorance is no defense in the eyes of the law. The examples of such standards and regulations include social responsibility whereby the company is required to operate in a friendly manner with the environment. That is no water and air pollutions to the environment. Another critical area of concern is the adherence to the regulations to hedge the company from being exposed to closure risks due to the failure of honoring such rules. Willing and potential investors should feel free and happy as such regulations promises business stability and help then shy away from their worries. Figure 3 balance sheet projections Read More