Achieving the Organizational Goals - Essay Example

Financial Analysis By Lecturer’s and INTRODUCTION In order to achieve the organizational goals and objectives, each and every firm or organization must have adequate financial plan that has to be put in place. Financial planning process basically refers to the means by which an individual or a business defines financial objectives and hence creating a proper strategy to attain them. A financial plan does not only serve as an organization’s checklist of various actions, but is also used as a document that can be used to check the progress so as to see if a change of strategy is required. Financial planning process varies depending on the unique features of the business and its goals, but basically there are various general steps and guidelines that form the basis of the planning process. These steps include; Determination of Current Financial Situations, Establishment of Financial Objectives, Identification of Alternative Courses of Action, Evaluation of those alternatives, development and Implementation of Financial Action plan and even the process of Plan re-evaluation and revision. The company’s policies on dividends and long term borrowing: Dividends are termed as the ultimate distribution of either present or past earnings in factual assets amongst the existing shareholders within a given firm based on their ownership proportions (FABOZZI, F2011). Dividend policy often connotes to pay-out policy that is usually pursued by various managers while making decisions on the pattern and size of the shareholder’s cash distribution over time. The managements’ primary objective is based on the shareholders’ maximization of wealth, which often directly translates into value maximization of a given firm as determined by the company’s stock price. The achievement of this goal can be done through the aspect of granting shareholders with a fairer payment with regards to their investments. However, based on this Company under study, the effect of its shareholder’s dividend policy is still un-settled in one way or the other (FRAME & CURRY, 1974). There are generally two major types of dividend policies that include the residual and managed policies. In residual policy the quantity of dividend simply refers to the cash that is left behind after the given Company utilizes NPV rule in making desirable investments. This hence means that there will be a higher dividend variability with regards to the amount and can even reach a zero point. On the other hand, the optimal policy refers to a policy that largely work towards maximizing the firm’s stock price, thereby leading to the ultimate maximization based on the level of shareholders’ wealth (BAGLEY, 2012). Generally, as per the analysis of this entire Company, they generally tend to adopt a number of dividend policies and structures that essentially suits the life cycle stage they dwell in. For example, the high- growth organizations with a bit fewer projects and larger cash flows tend to cash out a lot of their incomes as dividends. The firm’s dividend policies might hence follow various interesting patterns that further add to the entire decision-making complexity. First and for most, dividends usually lag behind the earning rates (HELFERT, 1987). This means that; increase in dividends is consequently proportional to increase in earnings and vice versa. Secondly, the entire reluctance of firms towards change with regards to dividends makes them to be in a sticky nature, and hence firms particularly tend to avoid the aspect of cutting down dividends even if the income rates drop. Thirdly, dividends follow a smoother path as compared to earnings. Finally, it is generally claimed that there are definite policy differences over the firm’s life cycle, which significantly results from the growth rate changes, project investment, as well as the cash flows. From the established financial analysis, Carter Dicks Firm should formulate dividend policies that will generally suit the life cycle stage they thrive in. For example, being a high- growth Company with larger rates of cash flows as well as fewer projects, it tends to reimburse most of their earnings in form of dividends. Its dividend policies might follow various interesting structure that will possibly add towards further decision-making complexity (HU, QIAOHAI, 2006). The Carter Dicks’ firm’s dividend policy shows that some implications can be posed towards the investors, lenders and mangers, and many other stakeholders. Similarly, the flexibility of managers with regards to the project investments is highly dependent on the quantity of the offered dividends to the shareholders. Lenders might also have some interests on the dividends amount that is declared by a firm (RODGERS, 2008). It shows that dividend payments largely present a sample of classic agency situation since its effect is generally borne by a number of claimholders. Therefore, this company uses the dividend policy as an ultimate mechanism for reduction of agency costs (SPICELAND, 2009). Moreover, this firm should generally put preference on a more stable and flexible pay-out ratio regarding the dividends simply because of the shareholder’s expectations and preferences. This hence makes the risk adverse shareholders to invest in those firms that pay higher current returns based on shares. The investors’ categories, including pensioners and many other smaller savers, are fully or partly dependent on such dividends in order to accomplish their daily needs. This is hence similar to the charity firms and educational institutions since they also have preference to stable dividends so as to enable them to carry out their normal operations. This company is thus highly preferred because it tends to pay regular dividends per year. This perspective of stockholders cluster within a companies that is well endowed with dividend schedules and policies that is equivalent to their preferences is generally termed as clientele effect (REES, 1995). While setting up these integral dividend policies, Carter Dicks Company should put into dire consideration a number of stringent factors. Some of these factors include; gearing and financial risk, target capital structure, availability of security, economic expectations, as well as the control issues. Gearing and financial risk: Based on the perspective of gearing and the financial risk, equity finance tends to increase while the debt finance decreases them. For example; if gearing for Carter Dicks Co is contemporarily at a particular given percentage, this value can either decrease or increase if there is a dire utilization of debt finance or equity finance respectively (BRAGG, 2000). This entire firm may also need to consider the aspect of attained debt finance within its capital structure. The financial risk’s level also needs to be put into consideration by this Company since it is desirable based on both stakeholder and corporate perspectives. Target capital structure This Company should on the other hand consider the aspect of target capital structure when setting up its policies. This has to do with comparison of its current capital structure especially after acquisition with the projected capital structure (QUICK DATA ORGANIZATION, 1991). If its main financial goal is based on shareholder’s wealth maximization, it should thus seek for minimisation of its WACC (weighted average cost of capital). It can be achieved practically through utilisation of the capital structure debt, simply because debt is somehow cheaper as compared to equity, while ensuring greater avoidance of the gearing extremes being either too little or too much. Availability of security: The Company should either use a floating or a fixed charge in order to ensure the existence of debt security on its assets. The financial amount required to purchase a given asset would have to be totally secured using a fixed charge (MURO, 1998). Economic expectations If Carter Dicks expects a buoyant economic situation and future profitability increase, it should be ready to employ fixed interest commitments towards debts (PALEPU & HEALY, 2000). Control issues The issue of rights will not work towards dilution of existing ownership patterns and control, unlike the shares’ issue to the upcoming investors. The alternatives between the provision of current shares to the existing and to the new shareholders highly depend on the needed financial amounts. This is on the basis that the rights issues being that can be utilized for the larger and medium-sized shareholder’s issues are put in place (GORDON & MACKIE-MASON, 1990). Reference List BAGLEY, C. E. (2012). Managers and the legal environment: Strategies for the 21st century. [s.l.], Cengage learning custom p. BRAGG, S. M. (2000). Financial analysis: a controllers guide. New York, Wiley. FABOZZI, F. J. (2011). Handbook of finance. Volume 2, Volume 2. Hoboken, N.J., John Wiley & Sons. http://www.credoreference.com/book/wileyhffimfm. FRAME, R., & CURRY, D. W. (1974). Financial management a multimedia program. Columbus, Ohio, Merrill. GORDON, R. H., & MACKIE-MASON, J. K. (1990). Effects of the Tax Reform Act of 1986 on Corporate Financial Policy and Organizational Form. Cambridge, Mass, National Bureau of Economic Research. http://papers.nber.org/papers/w3222. HELFERT, E. A. (1987). Techniques of financial analysis. Homewood, Ill, Irwin. HU, QIAOHAI (JOICE). (2006). Essays on Supply Chain Competition and Coordination of Operations with Finance. Case Western Reserve University / OhioLINK. MURO, V. (1998). Handbook of financial analysis for corporate managers. New York, AMACOM. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=2470. PALEPU, K. G., HEALY, P. M., & BERNARD, V. L. (2000). Business analysis & valuation: using financial statements: text & cases. Cincinnati, Ohio, South-Western College Pub. PENNSYLVANIA HEALTH CARE COST CONTAINMENT COUNCIL. (1999). Financial analysis. Harrisburg, PA, Pennsylvania Health Care Cost Containment Council. QATAR FINANCIAL CENTRE. (2009). Qfinance: the ultimate resource. London, Bloomsbury. 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