Doing Financial Management - Case Study Example

Financial Management Name Institution Affiliation Financial Management Organizations should collect, file, and maintain accurate financial records so as to ensure that every activity undertaken is successful. Financial records are also used to understand the nature of business activities that take place in an organization. A clear understanding of these business activities can help managers to appropriate the necessary resources towards efficiency. Data that exists inside of the accounting process can be used to develop relevant strategies that will help the organization maximize its profits (Brigham & Houston, 2004). Managers and supervisors are usually determined to gain valuable insights into the management of business operations in an organization. Managers have the responsibility of ensuring that organizations are efficient in their operations. So as to guarantee growth and sustainability, it is important to scrutinize the allocation of resources in an organization and to determine their impact on business operations (Brigham & Houston, 2004). Managers are, for this reason, keen to see their departments well-resourced and able to handle their operations with efficiency. These people are expected to be consulted during financial planning processes since they are responsible for ensuring that business activities bear fruit by organizational strategies. A failure to do this can result in disharmony as well as discord (Brigham & Houston, 2004). The most common types of financial reports that can be used in financial planning include Income Statement, Balance Sheets, Cash flow statement, and budgets. The Incomes statement is used to analyse the profitability of business processes in an organization. The Balance sheet helps to determine the financial health of an organization as it assesses the assets and liabilities of an organization. The Cash flow statement is used to determine the availability of cash in an organization that can be used to run the day-to-day activities (Brigham & Houston, 2004). Contingency planning is the process of ensuring that there is another plan just in case the preferred strategy fails to materialize according to plans laid out. Such a perspective recognizes the fact that it can be difficult to have a foolproof strategy when it comes to making financial plans. Contingency planning recognizes the need of considering other factors that can disrupt the normal course of business. In the event such a scenario occurs, a contingency plan can be useful in ensuring that the business can quickly get back to normal business operations (Brigham & Houston, 2004). It is important to ensure that teams and work group members are actively involved in designing and developing contingency plans. Working together as a unit helps to provide multiple perspectives with regards to strategy formulation. The experience of staff members can be useful to provide insight into some of the factors that can affect business operations. At the same time, active participation of workgroups helps to ensure that everyone has understood the aims of a budget and his or her role in ensuring that a budget is fulfilled. When teams can understand the aims of a budget and their role in it, they will be able to adapt to any changes that may occur during business operations (Brigham & Houston, 2004). There are some ways that employees can engage in towards the preparation of financial reports. The standard and most basic approach is to communicate with them the most important aspects of a budget. Meetings can sometimes be held so as to discuss crucial aspects of business. In addition to this, an organization can choose to utilize electronic forms of communication such as emails. Other strategies that can be used include the establishment of help desks or identified experts within the organization. Through coaching, mentoring, and structured training programs, an organization should be able to engage its employees in the budgeting process (Brigham & Houston, 2004). Employees should be involved in setting and monitoring the budget so as to ensure that they understand and appreciate the critical objectives and strategies of the organization. In addition to this, their involvement helps them to appreciate and understand their role towards the achievement of these objectives (Brigham & Houston, 2004). A Cash Flow Statement is used to summarize the cash transactions which have taken place over a period. The statement analyses the cash receipts and the cash payments within a given trading period. Cash flow reports are used to provide vital information with regards to whether the cash inflows are commensurate with the cash outflows. In essence, the Cash flows statement helps to gauge the financial liquidity of an organization. At any given point in time, it is vital for a business to have adequate cash flow so as to support business operations. A failure to do so will force an organization to liquidate its assets to finance its operations (Brigham & Houston, 2004). So as to create a comprehensive Cash flow statement, a financial manager may need to assess both the cash inflows and the cash outflows. The cash inflows include items such as cash sales, interest received from cash in the bank, and payments received from debtors. Any cash arising from the sale of assets should also be factored into the equation. On the other hand, cash outflows would include issues such as the money used to pay for the purchase of stock, refund given to customers, and income tax payments. Other cash outflows include all expenses such as electricity and wages (Brigham & Houston, 2004). A budget is a useful tool that can be used to monitor work, performance, variation, and team outputs. As a financial plan, it used to ensure that an organization is on the right track with regards to the attainment of the strategic goals of the organization. Through analysis of variances, an organization can differentiate between that which was planned and that which was achieved. Variances can assess issues such as revenues from products and services, expenses, and production outcomes. With regards to production unit variances, an organization gets to compare expected produce with regards to the actual units that were produced (Brigham & Houston, 2004). Assets usually refer to the physical and the non-physical items that are owned by a business. Assets are those items that will provide additional sources of revenue once they are disposed or utilized in one way or another. Liabilities refer to debts or the commitment to pay a specific amount of money usually for something. Current liabilities refer to debts that need to be paid within 12 months while the non-current liabilities refer to those that need to be paid after 12 months. Expenses refer to the costs that a business incurs while operating their normal business operations. They are costs needed to ensure that a business continues to earn revenues. Equity refers to the contribution of a person to business. Equity can either be sourced from a single person or many as seen in the case of publicly listed companies (Brigham & Houston, 2004). Variance analysis refers to the process of identifying differences between that which was hoped for and that which was achieved. It is a tool that is used to compare the actual input or output with those that had been budgeted for in the first place. The General Ledger contains entries that are used to summarize the transactions that have taken place in the course of a given trading period (Brigham & Houston, 2004). It contains information that is crucial for the preparation of financial statements. Such information includes issues such as assets and liabilities, owner’s equity, expenses, and revenues. A budget report is an internal report that is used by the management of an organization to compare the estimated, budgeted projects with the actual performances achieved during a specified period (Brigham & Houston, 2004). It is used in correcting problems that occur in the business so as to ensure that performances are in line with the financial goals in the budget. The budget report is also used to show the accuracy of projections. Variance analysis reports are an attempt to identify and explain the differences between that which was planned and that which took place in the end. It is used to identify and explain the differences between the planned financial outcome and the actual financial outcomes (Brigham & Houston, 2004). Reports should be made to the management so as to provide them with a clear picture as to the functionality of all departments in the organization. It enables them to plan ahead fully and optimize their operations in accordance with the resources available. Investors need financial reports that will enable them to make informed choices when it comes to investing. Creditors need this information so as to ascertain the financial health of an organization. They will be in a position to know whether an organization is in a position to honour its financial obligations. It is also a legal requirement for organizations to prepare financial reports as they can be used during the filing of taxes among other things required by the government (Brigham & Houston, 2004). A financial report should contain an overview of the operations of an organization during a given trading period. It should contain the major highlights and achievements such as sales, expansionary activities, and so forth. A financial report should also reflect the Balance Sheet, which is used to portray the assets and liabilities of an organization. Another component of a financial report is the Income Statement, which is used to show the company’s overall financial position. It shows the profit or loss of a particular fiscal period. A Cash Flow Statement should also be included in a financial report detailing the cash that came into the company and that which went out due to expenses. A financial report should also contain footnotes that can be used to explain some crucial components. Some of these include explanations for deferred payments, incomes, expenditures, or taxes, to the following year (Brigham & Houston, 2004). The GST is a tax that is imposed on goods and services in Australia. Due to the presence of this tax, companies are poised to charge up to 10% extra on the prices of their products and services. The GST is part of special statutory requirement report referred to as the Business Activity Statement (BAS). The Australian Taxation Office (ATO) requires all business to register their operations as stipulated by law. It is the responsibility of the organization to pay the GST amount to the ATO (Brigham & Houston, 2004). An audit refers to a check of the organization’s financial activities concerning that which is legislatively acceptable. Audits are processes that can be conducted by either internal or external auditors. They are useful since they add value to a company (Brigham & Houston, 2004). Budgets refer to an organization’s plan that has been expressed in financial terms. They are usually prepared for a predetermined period with the aim of achieving stated objectives. Cash flows refer to the movement of cash in and out of an organization due to revenues and expenses during a specific trading period. General ledgers are instruments used to compile all transactions of a given trading period before they are included in financial reports. Profit and loss statements are used to show the financial position of an organization. They reflect whether a company made profits or losses during a specified trading period (Brigham & Houston, 2004). Computer and manual systems can be used to maintain financial records in an organization. Electronic systems are easier to use since they capture information effectively making it easy to generate reports as well as meet tax and legal reporting requirements. However, they can be expensive to set up as opposed to manual systems which are cheaper and simpler to use. The risk of corrupted data is much less as compared to computerized electronic systems (Brigham & Houston, 2004). Organizations need accurate and timely financial information so as to negotiate their business dealings successfully. They are crucial in future planning and streamlining the business operations. The chief financial officer is responsible for managing the overall financial affairs of an organization. He should be able to organize for materials to be collected in a similar fashion such as cash receipts, expense records, sales records, and so forth (Brigham & Houston, 2004). Apple Inc., Financial Report Apple’s annual financial report is disseminated to its investors and members of the general public as it is a publicly listed company. It is an extensive report that is comprised of various segments that target various crucial stakeholders, both internal and external. Some of these stakeholders include its employees, the government, investors, creditors, suppliers, and consumers. The report is produced to be in line with the requirements of the United States statutory requirements whereby all publicly-listed organizations are required to publish their financial records. The Securities and Exchange Commission is tasked with ensuring that companies such as Apple Inc fulfill their statutory obligations (SEC Website, 2016). The internal stakeholders such as employees take an interest in the financial information released by Apple as it relates to crucial issues such as personal income, benefits, and retirement. The employees will be concerned with the ability of the organization to provide job security in the long-term. The management monitors the financial presented so as to assess the ability of the organization resolve its debt obligations. It is crucial for the organization to remain solvent in the long-term so as to achieve its strategic objectives (SEC Website, 2016). The external stakeholders who would be interested in the financial reports released by Apple Inc include creditors, stockholders, suppliers, governments, and so forth. Stockholders are keen to see the value of their Apple stock as well as the dividends they are entitled to at the end of every financial period. Governments are concerned with issues to do with the collection of taxes (SEC Website, 2016). Creditors seek to gain clarity as to the ability of the organization to repay its debts in good time. Institutions such as banks would also be interested in looking at their ability to earn revenue from interest rates charged on loans. At the same time, suppliers earn revenue from selling products and services to Apple Inc. As such, they would be interested in assessing the organization’s ability to partner (SEC Website, 2016). The financial report contains some elements including the organization’s business strategy, the risk factors the company faces, legal issues, selected financial data, financial statements and supplementary data and the organization’s corporate governance structure (SEC Website, 2016). The financial information presented by the organization reveals that Apple is an organization that is involved in the design, manufacturing, and marketing of mobile communication and media devices, personal computers, portable digital music players, and so forth (SEC Website, 2016). The ethos of the organization is reflected in the organization’s strategy of providing the best user experience to its valued customers. The information presented in the report reveals that the organization is keen on ensuring that all products produced are in line with the overall vision of the company (SEC Website, 2016). The organization has spent a considerable amount of resources investing in digital platforms thus becoming a market leader. Indeed, the financial information puts Apple Inc as being a market leader across various market segments due to the supernormal profits that the organization has earned during the stated fiscal year. The report also presents an analysis of the nature of competition that the organization faces in its business operations (SEC Website, 2016). The financial statements indicate a positive trajectory across some indices including the company’s stock performance. The report shows that the organization has seen a general increase in the value of the company’s stock. Other critical issues presented in the financial report include net sales which at 2015 stood $233,717 million (SEC Website, 2016). The net sales have increased over a period of 5 years. The net income figure is also high and is reflected to be $53,394 million (SEC Website, 2016). The company has seen a general increase in the value of the total assets with the figures standing at $231,839 million for the year 2014 and $290,479 million for the year 2015 thus representing another positive movement and performance (SEC Website, 2016). In percentage terms, the net sales rose by 28% during 2015 as compared to 2014 due to the sales of iPhone (SEC Website, 2016). Other information presented shows the segments that bring in the most revenues for the organization with the Americas leading followed by Greater China with Europe close behind. The fiscal information presented by Apple Inc shows that the organization is in a good market position. The increasing sales show that the organization’s strategies are proving to be wise decisions considering that the organization operates in a fiercely competitive market. In addition to this, the organization has accrued huge cash reserves which will enable the organization to operate its research and development activities efficiently. Research and development are at the base of the organization’s overall strategy since it takes a keen interest in manufacturing aesthetically pleasing technology products that exhibit superior performance in comparison to products released by the competitors (SEC Website, 2016). The report shows that there are significant hurdles to be faced with regards to supply of critical components needed in the manufacture of specific products and services. The company is subject to significant supply and pricing risks since some components are obtained from limited sources or a single player in the market (SEC Website, 2016). There are no assurances that the organization can extend or renew some agreements that have been used to develop a stronger business position. The future also seems to hinged on support from third-party developers who will have to develop third-party applications and services. The failure of these players to provide the needed support structure for the company’s products may result in customers opting for competitor’s products (SEC Website, 2016). References Brigham, E. & Houston, J. (2004). Fundamentals of financial management. Mason, Ohio: Thomson/South-Western. SEC Website. (2016). Form 10-K Apple Inc. Sec.gov. Retrieved 14 July 2016, from https://www.sec.gov/Archives/edgar/data/320193/000119312515356351/d17062d10k.htm Read More