Strategic Financial Management | My Assignment Tutor

Unit 05: Strategic Financial Management Unit Reference NumberL/616/2727Unit TitleStrategic Financial ManagementUnit Level7Number of Credits20Total Qualification Time (TQT)Guided Learning Hours (GLH)Mandatory / OptionalOptionalUnit Grading StructurePass / Fail Learning Outcome – The learnerwill:Assessment Criterion – The learner can:Be able to apply the tools andtechniques of cost accounting.1.1Critically analyse the concepts, features andimportance of cost accounting in an organisation.1.2Apply tools of costing design and costing systems toan organisation.1.3Recommend improvements to the costing and pricingsystems of an organisation.Be able to critically analyse thefinancial performance of businesses.2.1Analyse financial statements to assess the financialposition of an organisation.2.2Recommend organisational decisions based onevaluation of financial statements using financialratios.2.3Propose managerial recommendations on thestrategic portfolio of an organisation based onfinancial analysis.Be able to evaluate the budgetaryprocesses of organisations.3.1Evaluate budgetary targets for an organisation.3.2Develop a master budget for an organisation.3.3Critically evaluate budget and budgetary processesin an organisation.Be able to recommend effective longterm and short-term sources offunding.4.1Assess the need for short term working capital andlong- term funds for an organisation.4.2Appraise appropriate sources of short term and fundsfor an organisation.4.3Justify choices of sources of funds using a range ofcriteria related to cost and risk.Be able to critically appraiseinvestment options.5.1Apply financial appraisal methods to analysecompeting investment projects in different kinds oforganisations.5.2Justify strategic investment decision for anorganisation using relevant financial information.5.3Critically analyse strategic investment decisionsusing information. ScenarioYou have recently joined Penco, a small pension fund that aims to strategically invest in low riskcompanies with a historically satisfactory return on investment.Task 1 of 3 – (AC2.1, 2.2, 2.3, 5.1, 5.2 & 5.3)Instructions:As a junior analyst, your first task is to review the market and select two companies listed on the Londonstock market and to access their financial statements. You should analyse their financial position, usingthe information from their financial statements and apply appropriate financial ratios. You should makerecommendations to Penco to invest. Calculations and financial ratios supporting the recommendationshould be appended to the memo for the board’s attention.Submission and delivery:▪ 1x memo (circa 1000 words excluding supporting calculations and financial ratios used)Referencing:• Each section must reflect any supporting Harvard style citations.• A comprehensive Harvard style reference list must be included at the end of the work.Task 2 of 3 Report – (AC4.1, 4.2 & 4.3)Scenario:The board of Penco approved your recommendations and decided to purchase stock in the twoorganisations you recommended. In fact, based on your recommendations, they decided to investmore than anticipated. The previous budget was £2,000,000 but the board wants to invest £1,000,000in each of the two organisations you recommended which means that an extra £1,000,000 is required.Instructions:Write a short report containing:▪ An introduction discussing the need for short term working capital and long-term funds▪ A main body comparing the sources of funding, including their pros and cons▪ A justified recommendation of your choices of funding for the £1,000,000 using a range ofcriteria related to cost and risk.Submission and delivery:▪ 1x report (circa 1500 words)Referencing:• Each section must reflect any supporting Harvard style citations.• A comprehensive Harvard style reference list must be included at the end of the work.Task 3 of 3 – Essay (AC1.1, 1.2, 1.3, 3.1, 3.2 & 3.3)Scenario:Penco is excited by the results of your previous work and has asked you to review operations atExciteco where it is an institutional investor.Exciteco manufactures electronic components for export worldwide, from factories in Finland, for usein smartphones and hand-held gaming devices. These two markets are supplied with similarcomponents by two divisions, Phones Division (P) and Gaming Division (G). Each division has its ownselling, purchasing, IT and research and development functions, but separate IT systems. Somemanufacturing facilities, however, are shared between the two divisions.Exciteco’s corporate objective is to maximise shareholder wealth through innovation and continuoustechnological improvement in its products. The manufacturers of smartphones and gaming devices,who use Exciteco’s components, update their products frequently and constantly compete with eachother to launch models which are technically superior.Exciteco has a well-established incremental budgeting process. Divisional managers forecast salesvolumes and costs months in advance of the budget year. These divisional budgets are thenscrutinized by the main board and revised significantly by them in line with targets they have set forthe business. The finalised budgets are often approved after the start of the accounting year. Underpressure to deliver consistent returns to institutional shareholders such as Penco, the board does nottolerate failure by either division to achieve the planned net profit for the year once the budget isapproved. Last year’s results were poor compared to the annual budget. Divisional managers, whoare appraised on the financial performance of their own division, have complained about the length oftime that the budgeting process takes and that the performance of their divisions could have beenbetter but was constrained by the budgets which were set for them.In P Division, managers had failed to anticipate the high popularity of a new smartphone modelincorporating a large screen designed for playing games and had not made the necessary technicalmodifications to the division’s own components. This was due to the high costs of doing so, which hadnot been budgeted for. Based on the original sales forecast, P Division had already committed tomanufacturing large quantities of the existing version of the component and so had to heavily discountthese in order to achieve the planned sales volumes.A critical material in the manufacture of Exciteco’s products is silver, which is a commodity whichchanges materially in price according to worldwide supply and demand. During the year supplies ofsilver were reduced significantly for a short period of time and G Division paid high prices to ensurecontinued supply. Managers of G Division were unaware that P Division held large inventories ofsilver which they had purchased when the price was much lower. Initially, G Division accuratelyforecasted demand for its components based on the previous years’ sales volumes plus the historicannual growth rate of 5%. However, overall sales volumes were much lower than budgeted. This wasdue to a fire at the factory of their main customer, which was then closed for part of the year. Reactingto this news, managers at G Division took action to reduce costs, including closing one of the threeR&D facilities in the division.However, when the customer’s factory reopened, G Division was unwilling to recruit extra staff to copewith increased demand; nor would P Division re-allocate shared manufacturing facilities to them, incase demand increased for its own products later in the year. As a result, Exciteco lost the prestigiouspreferred supplier status from their main customer who was unhappy with G Division’s failure toeffectively respond to the additional demand. The customer had been forced to purchase a moreexpensive, though technically superior, component from an alternative manufacturer.Penco’s institutional shareholders’ representative, recently appointed to the board, has asked you asa performance management expert for your advice. ‘We need to know whether Exciteco’s budgetingprocess is appropriate for the business, and how this contributed to last year’s poor performance.’However, the shareholder representative did also acknowledge that external factors had contributedto Exciteco’s poor performance in the last year and suggested that it would be useful if Exciteco’sperformance reports distinguished between variances which had resulted from its own operationalperformance as opposed to external circumstances which could not have been anticipated when thebudgets were produced. You noted that many organisations address this issue by analysingvariances into planning and operational elements.Prepare a report that deals with the following:• Critically discuss key concepts, features and importance of cost accounting,• Evaluate the weaknesses in Exciteco’s current budgeting system and whether it is suitable forthe environment in which Exciteco operates.• Evaluate the extent to which Exciteco’s poor performance for the last year can be attributed toexternal factors.• Discuss the potential benefits to Exciteco of analysing variances into planning and operationalelements.Submission and delivery:▪ 1x essay (2000 words excluding budget)Referencing:• Each section must reflect any supporting Harvard style citations.• A comprehensive Harvard style reference list must be included at the end of the work.Evidence to be submitted:• Memo. – 1000 words• Report – 1500 words• Essay – 2000 words


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