Financial management mba.docx

Financial management mba.docx

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Financialmanagementmba

Financialmanagement

Course:

MBA1STEdition

Lecturer:

Mrs.S.Kotta

StudentName:

LiweiShi

StudentID:

220181LS

0711********

Contents

1.0Thefactorsthatfinancemanagerhavetotakeintoconsiderationbeforeassessingtheworkingcapitalrequirements…………………3-5

1.1Introduction…………………………………………..……………....…………..3

1.2Definingofworkingcapitalrequirement………………………………...……..3

1.3Importantofunderstandingworkingcapitalrequirement……………………3

1.4Financialmanagerhastoassessthecashrequirementbysuitablemethod….4

1.5Considerbusinesscapitalstructure……………………………………………..5

1.6Conclusion…………………………………………………………………….….5

2.0Theimportantfactorsbeforefinancialmanagerstomakemergerdecision………………………………………………………..………6-8

2.1introduction………………………………………………………………………6

2.2Whydoesbusinessmakemergerdecision………………………………….…..6

2.3Businessneedtochooserightmergermethodthataccordingtobusinessstrategy……………………………………………………………………………….7

2.4Financialmangerhastoconsiderthemergerprocess……………………...7-8

2.5Financialmangerhastoconsidertheproblemfactorinthemergerprocess………………………………………………………………………….….….8

2.6Conclusion……………………………………………………………….……….8

3.0FinancialCrisisimpactonUKeconomybycomparingthefinancialcrisis90’s………………………………………………..…9-11

3.1Introduction………………………………………………………………………9

3.2Similarpointsofpresentfinancialcrisiswithfinancialcrisis90’s………..9-10

3.3FinancialcrisisImpactonUKeconomy…………………….……..………10-11

3.4Conclusion……………………………………………………………………….11

Reference………………………………………………….………..12-13

1.0Thefactorsthatfinancemanagerhavetotakeintoconsiderationbeforeassessingtheworkingcapitalrequirements

1.1Introduction

Financialmanagementcanbedefinedasthemanagementofthefinancesofabusinessinordertoachievefinancialobjectives.Theroleoffinancialmanagerwouldbetocreatewealthforthebusiness,generatecash,andprovideanadequatereturnoninvestmentbeatinginmindtherisksthatthebusinessistakingandtheresourcesinvested.Agoodfinancialplanningandcontrolcanbringbigbenefittothebusiness.

1.2Definingofworkingcapitalrequirement

Theworkingcapitalrequirementdependinguponmanyfactorssuchashowfrequentlythecompanyreceivesearningsandhowhightheirexpensesare.Itisnecessarytodefinethecurrentliquidassetsinthepossessionofthecompany.Thismaybesomewhatdifferentfromgeneralassets,sincethefocusisonthoseresourcesthatcanbeconvertedintocashquicklyandeasily.LiquidassetsmaybesuchresourcesastheoutstandingcurrentAccountsReceivablebalance,propertythatisnotdirectlyusedintheoperationofthebusiness,andbalancesinvariousoperationaccounts.

1.3Importantofunderstandingworkingcapitalrequirement

Thegeneralideaistoensurethereisenoughrevenuegeneratedtocovertheessentialoperationsofthecorporationandallowforadditionalrevenuetobegeneratedinthefuture.However,calculatingthecurrentworkingcapitalrequirementatleastonceaquarterwillallowthecompanytospottrendsthatmayindicateproblems.Forexample,iftheworkingcapitalrequirementrevealsahighernegativeratiofrompreviousperiodseventhoughlong-termdebtwasreduced,thismayindicateanissuewithdecreasedsalesandearningsorotherfactorsthatarecausingalesseningneededcapital.（Tatum,2008）

1.4Financialmanagerhastoassessthecashrequirementbysuitablemethod

Thefinancialmanagerhastoforecastwhattheassetsandliabilitieswillbeinthefuture,whichbyusingcashflowforecastingandratioanalysis.

Workingcapitalandquickratio

Workingcapitalisthedifferencebetweencurrentassetsandcurrentliabilities.Clearly,thesafestpositiontobeinistohavemoreassetsthanliabilities,andthebiggerthedifferencethebetter.Theformulaforworkingcapitalissimply:

Currentassets–currentliabilities.Alsoknownasliquidassets,currentassetsalsocalledshort-termresourcesincludecash,inventory,andaccountsreceivable,andanyassetsthatareexpectedtobeturnedintocashwithinoneyear.Currentliabilitiesarethetradecreditors,short-termborrowing,andothercreditorsrepayablewithinayear.

Quickratioisasimilarbutmoredemandingwayofmeasuringcashneeds.Stockiscompletelyleftoutofthecurrentassetstotalbecauseitmighttakesometimetoturnintocash.Onlyinvestments,moneyinthebank,cashandmoneyowedbycustomersarecounted.Agoodscoreinthequickratiotestisusuallyanindicationofahealthybusiness.

Cashflowforecasting

Sincecashisessentialtoabusiness,acashflowforecastisoneofthemostimportantmanagementtoolsthatfinancialmanagercanuse.Whenthebusinessexpectsarapidincreaseinbusiness,anaccuratecashflowforecastisvital.Thispredictsthemoneycomingintoandgoingoutofthebusinessand,tobeeffective,itneedstobebrokendownintorelevantperiods–monthly,weekly,orevendaily.Thecashflowshowswhethertheextrademandcanbeeffectivelyfinanced,whetherthefirmneedextrashort-termfinancialsupport,orwhetherthereisariskofovertrading.（WaterstonandBritton,1999）Thepurposeofthecashflowforecastistoprovidethebusinessownerwithprojectedfigure,whicharecalculatedtoensurethesurvivabilityofthemoneyandultimatelytheachievementoftheplannedandtheprofitabletarget.（Atrill,2003）

Gearing

Thisisthepercentageofmoneyborrowedfromthebankcomparedtomoneyprovidedbytheownersandotherinvestors.Gearingcanhelpabusinessbyboostingcash,butitdoesinvolveborrowingpotentiallylargesumsofmoney.Thereisnosetsafefigureforgearing,becausebusinessesdiffersomuch.Ahighgearingratiomeansthatthebusinesshasahighproportionofborrowedfundsinitstotalcapitalandtheriskishigher.

1.5Considerbusinesscapitalstructure

Financialmanagerneedtoconsiderhowdoesbusinessgetthefundstoimplementfirm’soperations.Differentorganisationshavedifferentcapitalstructure.Businessoperationcanbeimplementedbythecashinhand,takingloanfrombank,debtandequity.

1.6Conclusion

Financialmanagershavetobeanattentionstoconsidervariousfinancialfactorsbeforeassessestheworkingcapitalrequirement.Wrongestimationinworkingcapitalcanputinorganizationintothedangersfinancialsituation,fromthatreason,it’simportantforfinancialmanagercautiouslyassesseswhetherthefirmhasgotenoughfundstooperatethebusinessornot.InorderToruntheworkingcapitaleffectively,makesurethatthecompanyhasenoughtocovertheusualcostsandexpensesnecessarytooperationthebusiness.

2.0Theimportantfactorsbeforefinancialmanagerstomakemergerdecision

2.1Introduction

Amergeriswhentwobusinessofequalsizecombine.（Atill,2006）Manymergersfailtoproduceshareholderwealthandyettherearecompaniesthatpursueahighlysuccessfulstrategyofexpansionthroughmergers.So,thefinancialmangerhaveconsidertheimportantfactorsbeforetomakemergerdecision

2.2Whydoesbusinessmergerwithothers?

Therearesuchbenefitsforthebusinesstomakemergerdecision.Whenbusinesscombinewithotherbusinessinordertoeliminatecompetitionandincreasemarketingpower.Fromthemerger,marketpowerisamotivatorinverticalaswellashorizontalmergers.Downstreammergersareoftenformedinordertoensureamarketfortheacquirer’sproductandtoshutoutcompetingfirms.Upstreammergersoftenleadtotheraisingorcreatingofbarrierstoentryoraredesignedtoplacecompetitorsatacostdisadvantage.

Animportantcontributortosynergyistheabilitytoexploiteconomiesofscale.Largersizeoftenleadstolowercostperunitofoutput.Rationalisingandconsolidatingmanufacturingcapacityatfewer,largersitescanleadtoeconomiesofproductionutilisinglargermachines.Economiesinmarketingcanarisethroughtheuseofcommondistributionchannelsorjointadvertising.Therearealsoeconomiesinadministration,researchanddevelopment,purchasingandfinance.

Bybringingtogethertwofirmsatdifferentstagesoftheproductionchainanacquirermayachievemoreefficientco-ordinationofthedifferentlevels.Thefocushereisonthecostsofcommunicationandthecostsofbargaining.Verticalintegrationreducestheuncertaintyofsupplyortheprospectoffindinganoutlet.Italsoavoidstheproblemsofhavingtodealwithasupplierorcustomerinastrongbargainingposition.（Atill,2006）

Themergerstrategycanhelpbusinessentrytonewmarketandindustries.Ifafirmhaschosentoenteraparticularmarketbutlackstherightknow-how,thequickestwayofestablishingitselfmaybethroughthepurchaseofanexistingplayerinthatproductorgeographicalmarket.Togrowintothemarketorganically,thatis,bydevelopingtherequiredskillsandmarketstrengththroughinternaleffortsalone,maymeanthatthefirm,formanyyears,willnothavethenecessarycriticalsizetobecomeaneffectivecompetitor.Duringthegrowthperiodlossesmaywellbeincurred.Furthermore,creatinganewparticipantinamarketmaygenerateover-supplyandexcessivecompetition,producingthedangerofapricewarandthuseliminatingprofits.（Arnold,2002）

2.3Businessneedtochooserightmergermethodthataccordingtobusinessstrategy

Business’smergerstrategyhastofollowthebusinessstrategytodecideitstargetmethod.Mergerscanbeclassifiedaccordingtotherelationshipbetweenthebusinessesbeingmerged.Therethreekindsofmergermethods.Ahorizontalmergeroccurswhentwobusinessesinthesameindustry,andatthesamepointintheproduction/distributionprocess,decidetoco