The Financial Analysis for Nortion and Fregie - Assignment Example

Financial Plan By Course Code and Name Professor’s Name University Name City, State Date of Submission Financial Plan A financial plan is a document that details the financial organization of the company or the inflow and outflow of an individual. It enables an individual to effectively plan for the finances that he or she receives during a certain period of time. The document also takes into consideration of the age of the parties that are being involved(Artikis 2007). Reasons for Financial Planning Financial planning enables individual to plan their finances so as to be certain on the way to use their money. It enables them to know which policies to use in order to ensure that they survive in competing world. There are many factors that have led to the need of financial planning in Australia(Fraser 2001). The age groups who are working are not diverse. Majority of the people who are working currently are old. The birth rate has significantly reduced in many countries. This means that in the future there will be a high number of people in retirement age and less number in the production age. It is therefore imperative for the government to come up with effective policies to ensure good financial planning. The death rate on the other has also reduced. This means that there will come a time when the number of older people on retirement will be more than the people who will be working. The older people need to put up mechanisms that ensure that they remain productive even after their time of retirement(White 1998).The study has also show the trend of long levity nowadays. The lifespan in most parts of the world is 79 years for women and 75 for men. There are so many years that an individual is expected to live after retirement scheme. They need a good financial plan for their earnings and investments and for their lives to live(Artikis 2007). Financial planning ensures that there is proper management of the scarce resources that are available. The risk of understating or overstating of the finances is minimized through financial planning(Fraser 2001).. Financial planning is a forecast of how cash will be spent in the future of the business. If there is no financial planning, the finances of the company are exposed to the risk of misappropriation. Financial planning ensures that the available finances are used for the intended function(White 1998). During the course of business transaction there are many activities that are involved. At times, there are instances where unforeseen opportunities occur. In the event that the available resources are not planned for, they will be used. This may affect the operations of the business. A business should be treated as a separate entity from the needs of the owners. Financial planning provides a good platform over which chronological events occurs as they have been planned. The resources that the company has are effectively used. A good financial planning enables a company to grow both in assets and returns. Financial planning ensures that there is proper management of the scarce resources that are available. The risk of understating or overstating of the finances is minimized through financial planning. Financial planning is a forecast of how cash will be spent in the future of the business .If there is no financial planning, the finances of the coupleis exposed to the risk of misappropriation The Financial Plan for Nortion and Fregie is been documented below. A Financialplan for Norton and Fergie Salary Age Income per Year Superannuation rate 9% 0.09 Norton 45 $90,000 $8,100 $98,100 Fergie 44 $50,000 $4,500 $54,500 Assets Town house $600,000 Personal items $84,000 Cars $50,000 Cash Management Trust $120,000 Transactional bank $7,500 Investment Institution $40,000 Direct Shares $30,000 Superannuation assets $150,000 Term deposit $12,000 $1,093,500 Liabilities Mortgage (8.40%) $400,000 Credit card (17%p.a) $20,000 Car Loan (12%) $40,000 Overdraft Facility (15%P.a) $5,600 Estimated expenses Living expenses per week $950 Trip $88,000 $554,550 The financial plan for the couple shows that they are in a good position in which they are able to cater for their financial daily needs. The assets are more than the liabilities. This can be explained that the company is able to meet its shortterm and long term obligations. The Short Term Goals The short term goals are those strategies or objectives that one tends to accomplish in a period not less than five years. The short term goals may be settlement of obligations in the short run, financialgrowth or any investment that would be required. Every individual or company ought to have immediate goals in which they drive him or her towards achieving them. Looking at the financial details that the couple has presented, it shows that they have a good financial base when one observes the assets that you both have. The total assets are $1,093,500. This shows that you own substantial assets. The couple has invested highly on growth assets than defensive assets.The ratio of the assets to the liabilities is not favorable in the short run. It is imperative to maintain very low liabilities for the couple. This is because the age factor between the couple. The couple seeks to maximize their returns from investing in growth assets such as building. They are also ensuring that they increase their returns in the short run. The couple also has a short run objective of increasing saving from the current $ 154,000 to $ 300,000. The Long Term Goals The long term goals are those objectives that have more than five years. One of the long term plans for the couple is to save for a good retirement where they will save enough for retirement. Considering the age of the coupleit means that they need to save substantial about in investment institutions and mutual funds for the sake of the future(Artikis 2007). The repayment of the mortgage is a long term liability which also falls in the long term goal. The mortgage must be repaid on time and the interest that accrues from it. The couple needs to come up with various ways in order to ensure that this amount is repaid on time without disrupting the cash inflow of the company(Fraser 2001). There are other long term goals such as expansion of the assets that they own. The assets serve as a good life time investment. This is because assets such as building tend to appreciate as time goes by. Norton and Fregie are growing old as time goes by, the assets’ that they own now and which they are aspiring to appreciate with time. During the retirement period they are very costly and scarce. The time value of money is one of the major components that influence the couple to invest heavily in asset growth properties(White 1998). The time value of money changes from one period of time to another. Today an asset might be costing at an affordable amount that at a certain time in future with the same kind of money it will be difficult to acquire the same asset. Current Budget for Norton and Fergie for the financial year ended 2012/13 Income Norton $90,000 Fergie $50,000 transnational bank $187.50 Term Deposit $1,800 Dividend $45,000 $186,988 Expenses Living expenses $49,400 Travelling $88,000 Mortgage Interest $33,600 Credit Card $3,400 Car loan $4,800 Overdraft $840 $180,040 The above is a budget for the couple between Norton and Fergie. The budget assumes that the interest that is accrued from the liabilities that they are to pay is an expense to them. It is therefore treated as expense dung the financial year 2012/13. The total expense duringthat year is $ 180,040. The income for the couple is coming from various sources such their employed income, interest from transnational bank, term deposit and divided from the shares from different companies which are listed in stock exchange in Australia.The budget also assumes that the daily expense of the couple is the same over the financial period. The living expense which has been calculated on average is $49,000. It is assumed that the couple has constant spending habits. Average Assets Asset position as at 2012/13 Town house $600,000 Personal items $84,000 Cars $50,000 Cash Management Trust $120,000 Transactional bank $7,500 Investment Institution $40,000 Direct Shares $30,000 Superannuation assets $150,000 Term deposit $12,000 $1,093,500 The aggregate assets that both Norton and Fregie have as at 2012 are $ 1,093,500. The assets ranges from the house that they on in town to term deposit they annually deposit. The table above shows that the couple has managed to have assets together. They have diversified their investment in asset allocation because they have invested the property in different portfolios. C. Asset Allocation Allocation of Notion and Fergie Total Assets Investment Institution A Investment Institution B Australian Shares $12,000 $18,000 $30,000 International Shares $8,000 $10,000 $18,000 Listed Property $6,000 $2,000 $8,000 Australian Fixed Interest $8,000 $2,000 $10,000 Cash $6,000 $4,000 $10,000 Assets Woolworths Telstra AGL Energy Myer Directly held $7,500 $7,500 $7,500 $7,500 The assets are allocation for Norton and Fergie is divided amongst two institutions. The Australian shares are $ 30,000, International shares are $18,000, Listed Property is $ 8,000, Australian Fixed interest is $10,000 and there is a total of $ 10,000 in cash. The couple also holds the directly in four different companies which are listed in the Australian Stock exchange(White 1998). They have apportioned the shares equally in the four companies. Each company has a share of $ 7,500. The couple earn divided at the end of each accounting period depending on the performance of the company during a certain accounting period. The money that is earned from these types of the assets can be used to supplement the finances of the couple. Part of the income should be added to superannuation kitty for the future reasons of retirement. The couple however have invested too little amount in the securities. The dividend that is reaped from the investment is not quite substantial to supplement the finances of the couple. Securities are part of investment opportunities that can be of great significance in boosting the finances of the individuals(Artikis 2007). It calls for identification of good companies in which one would invest his or her finances. The investment in the securities is a risky investment but it has very high returns in future. I would therefore recommend to the couple to consider investing in the securities and in those companies where they are likely to make profits and not losses. Nortionand Fergie need to balance their asset allocation from those assets that are growth assets to those assets which are defensive. The couple tends to be passionate on investing highly on the growth assets. About 80% of the investment in of the couple falls under these bracket. It should come up with appropriate policies that will ensure that there is a balance between the growth assets and defensive assets(Gardner 1998). I would recommend a ratio of 3:2 between the growth assets and the defensive assets. The Superannuation Superannuation is the arrangement that the government of Australia have to ensure that employee in the country pay 9% of their salaries and wages to superannuation beginning in the year 2013 to 2020. All people in Australia are required to have this policy in their life. The couple has invested in superannuation in order to ensure that they have a good life in the future. The couple benefit from superannuation in their income that gives a rate 9%. This adds up to the total income that the family make. The total income per year that comes from superannuation of is $ 12600. This is really boosts their income that need to be invested in an investment so as to ensure that they get to save for substantial amount in the future. The other amount in the asset that is on the superannuation is $ 150,000. This is too little saving consideration that the couple is nearly coming to retirement age. Their savings is too little to cater for you in the future. They need to increase the level of savings in the superannuation(Fraser 2001). The current study shows that the life spans of individuals have changed over time. It have increased from 55 years and 59 years for both men and women to 75 and 79 years respectively(White 1998). This means that the number years in the retirement period have increased. The young ones have not recently been in need to give birth. This is a future problem that must be considered when making financial decisions. The work force will decrease and the productivity will decrease. It is therefore imperative to build on a good financial base at this time. They need to increase their investments in assets and reduce the liabilities that they are having. Norton and Fergie have a duty of preparation of a good financial plan that will be used to ensure full control of their finances. The financial plan will help the company to stick to the plan. It will also serve as a benchmark over which the effective planning for their future will be based. The financial plan identifies the sources of finance that the company. The financial plan also identifies the types of assets that the company need and how the assets will be maintained. D. Issues from Financial Situations There are several situations that emanate with the couple’s financial situation currently. The finances that they get in the employment sector tend to satisfy your basic needs. You are able to the necessities of life in daily basis. On the other hand, there is no growth that can be observed from the employment. The level of saving is very minimal. When it comes for provision about the future in retirement period, it will not cater for it. There is also a tendency of satisfaction in the gains that are acquired from the small investments that you have already made. The couple has invested in various assets which include builds and other securities where they gain interest. There are various tools of financial analysis that can be used to determine the financial wellbeing of individual(Artikis 2007). In the determination of the ratio of assets to liabilities, we assess the ability of individuals to account of the real value of what they possess. The Total Assets = $1093500 The Total Liabilities 554500 = 1.9 The ratio is greater than one. This implies that you are in a good position of assets as compared to the liabilities. The couple is in a position to cater for their liabilities without difficulties. Diversification of the finances in makes the family to be in a very good position in case of financial disturbances that might occur(Gardner 1998). They have already invested their wealth in house, in the bank, investment bank,superannuation and personal savings. The only financial issue that is arising is too little to supplement the financial problems in the future. It is also imperative to continue investing in diverse form due to economic uncertainties that might occur in the environment that might disrupt your financial stability. The couple is risk averse and consider in investing in asset growth investment. Looking at the assets that the couple has it is clear that there is a higher tendency to invest in asset growth. The company owns a house in town that is worth $ 600,000. This portion of allocation has the highest allocation compared to the rest of the assets that the couple has invested on. It actually takes have of the assets that the couple has.The couple has also taken a mortgage of about $ 400,000. This also shows that the couple has a passion to invest in another asset growth property. When the couple finishes repaying the mortgage; it will become part of the asset that the company will be having. The allocation of the assets is therefore inclined to investing in growth assets(Fraser 2001). The couple has highly concentrated in investment of growth assets such as building and mortgage. This shows that significant amount of the couple’s investment go this direction. This represents about 80% of the total investment that the company is making. The defensive assets are neglected. This is a great risk considering that the couple is growing old and approaching retirement. It is advised that the couple should balance their level of investment on both types of assets. The couple is also neglecting greater art of insurance fund. They have only insured the hose and the commodities that are there in the house. They have not taken into consideration about health insurance that affects them directly in the event of illness(Artikis 2007). They have also not put cautions for other assets such as car and the cash that they have. It is imperative for the couple to their health very seriously and insures them. This is because the superannuation kitty that they have is very small to cater for the family during retirement. It is high time the couple rethinks about taking insurance cover in-order to ensure that their finances are safe in the event ill health strikes (Gardner 1998). f. In Australia insurance companies offer various policies that indemnify the people during retirement period. The policy cover is a form of investment for the future. This is because the person who has this policy is indemnified for his investment at the time of old age. According to the financial plan that is presented, it does not show any contribution to any insurance policy. It is a bad show to notice that the couple does not have insurance cover for their lives or medication (White 1998). Sickness is an eventuality that might come to any individual no matter the age that one is in. Insurance policies ensure that they pool resources ofindividual who are exposed to the same risk. Intheevent of uncertaintythe insurance companycomes in handy to rescue the situation. There are other policies in insurance which are an investment to individual other companies. The couple has taken full insurance cove for the house and its content. This is because they consider the house to be a huge investment to them. This is not enough for the couple due to the fact that there are other risks that the couple is subjected to(White 1998). They include health problems, accident for the car and income risk that might negatively affect an individual. g. It is also advice sable to use good tax policy so as to ensure that the cost the business is cut. You need to apply a ratio of 3:2 on personal savings and loan respectively. This will ensure that the finances of your finances clearly a bid to lower taxation rate. There is a progressivetaxation system in Australia that charges its citizens in relation to the earning they get. It is also called Pay as You Earn. It ensures that there equitable taxation across all walks of life. It protects individuals who are not very wealth from exploitation by the government or higher income group earners(Fraser 2001). The level of taxes that the couple pays is exceedingly high due to the high taxation that is in Australia. There are various ways in which can be used to reduce tax liability for the couple in order to increase their savings. One of the ways is to reduce the assets that they are holding and invest in other forms(Artikis 2007).The house that is in town is a form of investment. The government charges certain amount of money to it in form of tax. The asset is a huge investment for the couple. They have an option of selling the house and invest the money which they have acquired in other areas of finance. With this plan the couple will notpay the tax they have been paying on the asset. This method of selling asset in order to reduce tax liability has its own disadvantages. The couple loses the valuable assets that they have owned. The value of the asset might be higher in future and they might not be able to afford it.The asset might also be unavailable in the market in the future time. It is therefore not imperative for the couple to sell the assets that they have with a claiming that they are reducing tax liability to the government. The othermethod in which the couple can reduce tax liability is through use of superannuation submission for retirement. The money is in social security kitty of the government and is not taxed (Fraser 2001). The couple can take advantage of the situation and save money as a result in order to ensure that it saves more the future. This method of reducing tax liability has its disadvantages. A lot of money is cut from the salary and wages and the couple might not have enough money to cater for their current obligations. It would not make sense when he couple start struggling to cater for their basic needs in a claim that they are doing that for retirement benefits. Another way to minimize the tax liability is to invest in long term investments such as in capital gains. Norton and Fergie have not invested heavily in securities in big companies. They have invested heavily in growth assets such as building (Artikis 2007). When one invests in securities there are two types of returns that one can expect. The capital gains and return on the interest of the one makes when the shares are being sold. The income from capital gain is not taxable by the government. The couple should therefore reconsider their policy where they are heavily investing in growth assets to securities(Artikis 2007). I would therefore advise that the couple add more investment in the security market. This policy of investing in securities so as to enjoy reduction liability of the couple to government however has some disadvantages. One the investment in securities is a risky investment that one is not certain that they will make gains or losses. There is no certainty in the returns to the couple. In some cases you can make huge loses when the shares do not trade as expected. References ARTIKIS, G. P. (2007). Capital structure. [Bradford, England], Emerald. http://site.ebrary.com/id/10185531. FRASER, L. M., & ORMISTON, A. (2001).Understanding financial statements.Upper Saddle River, N.J., Prentice Hall. GARDNER, D. C. (1998).Capital structure. London, Financial Times Pitman Pub. MILLBRAE (CALIF.). (1992). Financial plan.Millbrae, CA, City Administrator. NORTH NORFOLK (ENGLAND). (1900). Financial plan. [Cromer], North Norfolk District Council. WHITE, G. I., SONDHI, A. C., & FRIED, D. (1998).The analysis and use of financial statements.New York, Wiley. Read More