Managing financial principles & techniques

P1 Price is been seen as the very well significance making issue towards the commod ity pricing and it should be seen that the pricing is not all been enclosed thro ugh the first time making sales of those commodities they have to be slowly encl osed at a specific time lo like the cost under the building, plant comes under t he fixed costing as time would be carried more in making the cost enclosing. Production cost, overhead cost, variable cost, non productive cost, fixed cost, sunk cost, direct-indirect costs are the various costing types and much more tha n this are there. In the same way multiple cost strategies are available like th e volume discounting, relevant cost price, cost plus pricing, product line prici ng, price discrimination, market skimming, complementary product price and many more are the strategies that are involved and are as per the marketplace situati ons along with the costs. Corporation is the base line with the decision towards the manufacture like in w hich units the requirements are been made manufactured as per the price at the t ime the prices are been made enclosed with the inclusion of variable along with the fixed prices then the results is equilibrium. If the commodities cost are hu ge then at this time the production made would be small in number as in early pe riods the cost of all would be made covered but then too it is dependent towards the structuring of the bazaar under the operational organization. But in case o f the monopoly bazaar the price of the commodities are basically listed expensiv e and the clients make no choice towards the same but if the competitors are mor e than the price are competitive that is less than others so that to carry out t heir sustaining. The firm s competence stand would be made resolute with the help of the pricing. If the price of the goods are been kept at low then it would be made seen that the new comers to the marketplace would be made reduced and if the price is big then the retaining in the bazaar would be difficult for them to do so.

Thus with the prices as the bottom would help in making the enhancement towards the bazaar shares as well as with the selling enhancement thus with this the ima ge of the corporation would be made enhanced. P2 Cost, competition plus customers are the influential effect towards the products price making. If the cost making system is good then the price towards the goods manufacturing should be made designed within the same so that the effects would be made creat ed in the firm. Cost like variable price along with the fixed price should as well be encompasse d. From the overall cost the each units part should be made broken such that it would make the facilitation trouble free of all of the matters regarding the mul tiple price that are making the coming in each manufacturing section. For making the breakeven point, multiple methods and approaches are available li ke as follows: 1. TR equals to TC, were TR stands for total revenue and TC stands for tota l cost. In this case during the total revenue is enclosed along with the variabl e plus with the fixed cost thus with this the equilibrium gaining would take pla ce. 2. MR equals to MC, were MR stands for marginal revenue and MC stands for m arginal cost. In this case during the marginal cost makes the decrease of the ma

rginal revenue from beneath at that instance equilibrium gaining would take plac e.

The cost process would carry the effectual benefits if the clients make the will in making the products payment as per their ability then the result of such sys tem would carry effectiveness. At the time of making the price determination, the various marketing infrastruct ure should be made considered like as follows: 1. Perfect competition 2. Monopoly 3. Oligopoly 4. Duopoly Under least of the competitive skimming costs could be made seen in recovering p rice is the fast however this is not the same case with the high competitive pen etration cost that are additionally suited towards the covering price. If the best effective purchasing as well as selling strategies is there then the cot making system is effective and the controlling of the price should be made on manufacturing as well as sales. P3 Number of the enhancements would be made done in making the cost and price infra structure enhancement. Along with the large purchase the price could be made reduced as in the terms of the bulk discounting the decrease in the initial cost could be made done and th us indirectly the huge discount would be made and with this the discount economi es advantages would be made gained. Thus with the selling enhancement would and the company image would as well amplify. Under the industrial field the establishment should be made done so that the sel ling would increase and competency would be met and other parts should be made o utsourced, quality would be acquired and various outside economies are been made provided like transport done, additional cost like workers price, raw material. Through making cash sales the corporation would be made assist the organization in making the reduced along with the bad debts along with the work income that w ould be trouble free. As per the marketplace states the system pricing is been made selected. If the c ompetition is less the price would be more and in reverse. Penetrative strategy should be made gained under huge opposition and this will as well enhance the sh are in bazaar. P4 The achievement of the business may depend on the ability of the company in plan ning and meeting preliminary cost and the liability which is connected with the setting up of the company. Analysis of the break-even can be considered as a d evice which can help the company to calculate the time required to generate enou gh revenue to cover the production cost and make some profit from its sales. Mos t of the companies use this forecasting technique in the process of decision mak ing. Break Even Point = Fixed Costs Contribution One important component of the break-even is costs. Direct costs which are know n as variable costs are expenses associated with the production. They change ac cording to the quantity produced, increasing with the rise of quantity produced and decreasing with the fall of the output. The selling price variable cost gives the contribution. The costs which are not related to the output are known as fi xed costs. They are indirect costs and are also called as overheads. This is n ot to say that they do not change. They do change but not in proportion to the

quantity produced. Administration costs, insurance, advertising, marketing cost s etc are included in these costs. Generally the company must try to cover the direct costs in the shortest possible period. If the company is not generating sufficient revenue to cover its production costs from sales its future is not se cure. In the long run, however, the company has to cover the total costs that i s both fixed and variable costs. Once this is achieved the business will start making profit.

P5: Sources of Finance The organisation has to acquire funds and finance from various sources so as to undertake its operations like marketing, human resource, production etc. therefo re the company will have raise its funds so as to achieve the objectives of the firm. Internal Sources of Finance can come from Profit: Profit which the organisation earns is also used to raise the finance of the organisation to carry out its various operations. Thus it is recommended fo r the company that it should have a sound divided policy by which it properly al locates the profit by dividing it among the share holders as dividend and also i n paying the debt capital. Working Capital: The difference between the current asset and the current liabil ity of the company is termed as the working capital. The capital which the compa ny uses to carry out the daily requirements of the company. The finance of the company in case of the working capital can be raised in the company by paying th e creditors lately and also by requesting the debtors of the company to give ear ly payments. But this involves a risk as the relation with the suppliers and deb tors with the company is ruined. Sale of Assets and Lease Back: One of the sources of finance is when the company raises its funds by selling off its assets for the immediate use in the organis ation and then leasing it back. Therefore, this was seen at the time of recessio n by various companies. The company can also make use of the external sources of finance also for raisin g the finance of the company. Short-term (Period less than a year)

Overdraft: To immediately raise the finance for meeting the requirements of the business, the overdraft is used as the source of the finance. This generally has a short period of time. Loans: The amount which is borrowed by the bank at a fixed rate and whose due da te is fixed in advance. Its term accounts for long term. Debt factoring: by selling the debtors of the company to the debt factors at a l ow price can be used to get the money which is used to meet the temporary requir ements of the firm. Long-term (Period more than a year): The long term sources of finance is one whi ch shows a period of more than a year which the company takes assistance of when it has to get into a big project which is beneficial for the company.

Share Capital: One of the long term types of finance which the company acquires is the share capital. It is of great importance for the company because it help s the company in raising its finances for expanding the business and also for getting high return on the investment in future. Dividends are paid to the share holders of the company. Debentures: Debentures are the amount in the form of long term loans which are a cquired by the debenture holders of the company. This amount is issued by the c ompany when it has to invest a huge amount of money in the project when it is su re that the company will get a fruitful return on the investment. The debenture holders of the company are treated as the creditors of the company. This amount is paid to the debenture holders even when the company is going into losses. Mortgage loans: Another type of debenture is mortgage loan which is acquired fro m various banks and financial institutions as a long term loan.

P6 In order to have quantitative action plan over a predetermined time period the b udgetary targets are set out. With synchronization and communication this will make further planning easy and will establish control and motivation in the comp any. If the budgetary styles are changed to suit the requirements such as linkin g it to the style which is profit conscious it can be made more focussed to achi eve projected profit. Very often budgets have restrictions which create constra ints and this style of budget constraints helps to accomplish the projected retu rns. Whenever the budgeting takes non-accounting style its focus will be more t owards establishing control and co-ordination in the company. Depending on the various hierarchical levels such as strategic level or policy l evel or functional level at which the planning is done the different budgetary t argets are selected. Setting of the targets is done depending on the goal to be accomplished and the purpose of the budgets. The target differs from the hiera rchy to hierarchy according to the objectives which are to be accomplished to ac hieve desired performance at that hierarchy. Budgetary targets which are suitabl e Budgetary targets can be considered as appropriate if they can achieve the purpo se of control and co-ordination, strategic planning and analysis and those which take into account the constraints which exist in the budgets being conscious an d giving importance to the required profit. P7 A substantial effort is required to co-ordinate the highly complex business proc esses. Very often managers mention that one of the biggest challenges for the le adership is coordination. An all inclusive or the master budget is an indispensable omponent of coordinating effort. Such budgets join in logical harmony many buil ding blocks which are different from each other and reflect the entire company s fin ancial plan.

It is essential to articulate it carefully. The estimation of the expected sale s through sales budget is the beginning for the master budget. The budget has to be planned and drafted step by step which include preliminary scrutiny and analysis of the goals of the company and going through the company s r ecords and the previous budgets and the growth achieved. The estimations are ma de after analysing the forecasts. The anticipated sales is the driving force for the production plans as well as the selling, general and managerial budget. Th e requirement of material and labour is driven by production. Although the fact

ory overhead can be applied on the basis of labour but finally it is driven by o verall output. The production can be planned easily to consume all the resource s of the company. But in addition to this there should be plans to achieve succ essful results. The financial statements which are budgeted are the important m easures of that goal. The cash flow as well as the financial statement and thei r impact on the budget as well as on the process of planning must be carefully c onsidered while drawing master budget. The master budget is dependent on the oth er budgets such as sales, production etc. P8 There will be a master budget for some of the organisations, which is a combinat ion of several other budgets like the sales budget, production budget and labour overhead budgets. But in order to know whether we are able to achieve the targe ts that have been given in the budget, there is a need for comparing the budgete d values with the actual income and expenditure. If we look at the income of an organisation the primary source of income will be the sale of products and this will be a part of the budget and it has to measure whether the income is in line with the projections which are there in the master budget. There are also infor mation regarding the cash flow and various other details in the master budget an d these have to be analysed by comparing them with what has been earned so that they will know whether the budget has been able to achieve its target.

Coming to the expenditure part, the master budget contains information regarding the budgets for various expenditures based on the income and we need to see the expenditure and check if it is in line with the expectations or if there are an y deviations. These are the different steps which can be used to compare income and expenditur e statements with the master budget. P9 Monitoring the budget is a process which is continuous which helps us to ensure that the target is achieved in terms of costs and the revenue. Budget monitorin g makes sure that the resources are utilised for the purpose for which it is pla nned and accounted properly to both internal as well as external bodies. This i s to make sure that the resources are used economically, efficiently and effecti vely and to identify the possible opportunities and/or difficulties and to take corrective measures. Although the holder of the budget is finally responsible t o monitor the budget the authority of monitoring the budget may be delegated to other members. But the responsibility of managing the resources as per the budg et can not be delegated. For example the heads of schools, unit directors, chief investigators etc are budget holders whereas school secretaries, assistant rese archers, managers etc can be the authorised delegates. The budget monitoring fr equency will depend on the requirement of the individual who is holding the budg et. The frequency of monitoring the budget will depend on the budget holder or the d elegate. But this should be done as often as required to make sure that they ar e comfortable and confident that in full control over the budget and they are on the right path to achieve the sett goal. The schools and the units should be m onitored at least once a month. The monitoring should be done continuously and should be ready to do it when demanded and closest to real time.

The budget monitoring process should include the running of transaction reports as well as reviewing of the transaction to make sure that transactions are done in the right cost centre/analysis code/detail code and no erroneous entries are done so as to make sure that the present position is right. The control should be exercised by the budget holders on all entries in their accounts

P10 In the current vibrant and demanding environment different costing methods are d eveloped to help the business process of the day to decrease the process costs. A few of these methods are based on target costing, life cycle costing, back fl ush costing and throughput accounting. In order to overcome the difficulties po sed by the traditional costing methods such as absorption costing where overhead s was dependent on the output which was increasing with the increase in the outp ut the modern costing methods are introduced. These are suitable for manufacturi ng companies which have single product with complexities involved in the process es and without large number of manufacturing of multiple products. If there is g reater proportionate rise in overhead cost it will be direct cost since the comp anies are machine oriented. This has made it necessary to estimate the overhead production cost of the product. The other way can be ABC method where various c osts are recognised as different activities and allocation of resources is done and combined into groups based on the cost drivers. Based on their effect at va rious level of production these drivers are recognised. After that on the basis of absorption cost OAR is found out separately for individual activity. At the end the product will absorb this activity cost P11 ABC is used to calculate per unit cost of the product like other methods wherein cost is calculated. In the analysis of the financial position this helps in fin ding out the value of inventory. This also helps in valuing and recording of th e cost for the purpose of income statement.

For the production of a specific product it helps in the process of decision mak ing and the necessary amount of every quantity which may be considered as produc tion estimate. The traditional costing method which is absorption costing metho d has many limitations. This was used to find out the cost incurred for the pro duction process which was simple normally one product and the overheads involved at various levels of the process of production. Now manufacturing business has acquired complex nature. Hence a shift occurred from the single and simple production process to processes which are complex an d involving multiple products and therefore companies have started using costing based on activity to enable them to estimate and allocate different overheads w hich are caused by various activities which form the part of the process of prod uction of multiple products. Due to shift to the machine oriented production wh ich increases the activities numerous overheads are incurred and also many cost drivers are involved influencing the production cost to a great extent at variou s levels of production. Comparing the traditional costing method that is absorp tion costing in which overheads were restricted present day modern manufacturing methods involve complexities of processes and have increased overheads at vario us stages. Thus the technological progress has made it possible to use the cost ing based on activity. P12 For making the application of the financial PA systems, public as well as privat e sectors should be made determined and would be several because of the aims whi ch are generally new as well risk assumption along with the return criterion is varied under 2 cases.

By seeing the corporation example that include 3 projects, project selection whi ch is reliant towards risk supposition as well as company s financers expectation as per the returns and then after steady returns that could be made attached with few another good contribution. If the corporation is been made in slow-steady pr

ocess growing along with fewer risk supposition so in this case project I could be made considered because ARR is around twenty percent towards the first invest ment. Under project III less percentage is been made yield in first eras and the n in subsequent period more incomes is been yielded thus if the organization cou ld make the waiting for more eras and if could me the risk assumption then the i nvestment could be made on project III. Under the last option, ARR is been enhan ced that could make the suggestion of excellent prospect returns along with the corporate aim attainment. Under public sector, the project investment is reliant towards project price in making the attainment of non money aims. Thus less ARR might be in I choice that could be assumed to be pricey as this is with the qui ck along with the definite expansion along with the suppositions with few risks involved which is additionally preferable. Thus the aim attainment would make be st decision towards the PA criterion of 2 sectors in lengthy race. P13 If the ARR is been made viewed at the first investment then here ARR of project I is with the uniform with the twenty percent along with the development as well as returns suggestion to organization in consistent growing rate. ARR of projec t II is greater in the earlier years and then decreases in prospect yrs that mak es the company recommendation that could attain the grater money back in small t ime along with the slow-steady returning in prospect. Under project III fruitful results are been seen as the returning ration enhances slowly and would be addi tional along with the greater yielding in prospect return. In case the risk supp osition ability of the company is firm then as this time project II could be car ried and widely could be made proved to make productive results under private se ction contribution that could yield backward the huge expenses under the some in itially yrs.

Thus there exists huge chance of uncertainty in surrounding as well as interest rank in prospect thus many of the firms decide of attaining the huge results in first times as there exist regular competitive facts under the marketplace condi tion along with the environment dynamics that could result regarding the huge ch allenges towards the corporation in long time prospects thus making the see towa rds company viewpoint it could carry the contribution under the project II. With the 3 projects merit assessment, the ranking of the projects is been made as pe r the project II predilections if it is feasible, project III or else project I in end however the progress could rely on the correctness of the judgment as wel l as on submission plus feasibility of the first supposition. P14 If suitability of the pronouncement is well thought-out measured then the specul ation could not be merely moderated by in view of ARR seeing that ARR is merely bearing in mind the income succumb as earnings is the significant issue except n ot simply significant issue in the development. under the given instance the tec hnique for making the required judgment the alternative is seen as merely the in come on the speculation done other than there exist a variety of another facts s uch as the interior ability of the corporation plus make bigger of the feasibili ty of the supposition done in early time that would all see in attaining the sup posed revenues. For this reason the planned speculation decision in realism has well-built devotion to the ecological issue plus their favorability toward the a ccomplishment of proceeds. Though for the companies under public division merely ARR could not be in use as the assortment criterion, there exist different anot her issues such as pay-back epoch speculation that would as well required toward be seen with money flow etc. Project-III selected would be reliant towards mere ly if the assessment of every cost as well as the revenues are been made to be c orrect by suitably seeing the different ecological with another reason toward be as predictable. That s why we could state that the suitability of project assortmen t would be mainly relying towards attainment objective through the profits capit ulate as of the project in addition to another issue such as surroundings plus i

nterest ranking and etc. P15 The ability of an organisation to get the income which is required to run its op erations smoothly and also maintain it operations is very important. And in orde r to find out whether an organisation is capable enough of handling these type o f situations, we conduct a financial viability by looking at the financial state ments which will provide a clear picture about the financials of the organisatio n and help us know whether the organisation is having financial viability. Every organisation has to issue certain statutory reports annually in order to c omply with regulations and also to assess their financial position. There are th ree statements which are generally most useful for analysing the viability of a company and they are the balance sheet, the income statement and the cash flow s tatement. The balance sheet comprises information regarding what are the assets which the company is having in order to protect the capital of shareholders and also infor mation regarding the use of capital. It provides information regarding the capit al of the company and also the assets and liabilities that a company is having i n a specific financial year for which the balance sheet has been prepared. This information can be used to analyse the financial viability of company. By looking at the income statement, we can find out how the money is being spent by the company on various operations that it is conduction and also what is the revenue that it is earning through the sale of the manufactured goods. It can b e used for the calculation of various financial ratios that provide information regarding the different aspects related to a business like liquidity, asset turn over and other activities. It is through the income statement that we can analys e the profitability of the business and judge whether it is viable financially. But the income statement will not give a clear picture of the cash flow and for this an analysis of the cash flow statement is required, which provides detail p icture of how cash is being spent by the company and also the current cash posit ion. It can be used to analyse whether the company is in a position to withstand shor t term cash problems and also how efficiently is the surplus cash sitting with t he company being managed to generate good revenue for the shareholders. These are the different financial statements which can be used to analyse the fi nancial viability of an organisation. P16. In order to find out regarding the financial health of an organisation in detail, there are different types of ratios which are available in the accountin g system that help us to calculate the returns that are being provided by variou s things that we are using in an organisation and those ratio s with practical examp les will be discussed below

P17. Every company will be having a set of investments which it is going to make base d on the finances that are available to them. In order to be successful and maxi mise their returns they have to be careful when doing their investments and also what are the different instruments that are there in their portfolio. For a com pany to achieve good returns on the capital employed, they need to find out whet her the existing capital is being used optimally or not and this can be done by calculating the return on capital employed which provides information regarding how much is being earned for the money invested in the organisation. If the retu rn on capital employed is less then it shows that capital is not being used prop erly and they have to make the necessary modification to their operations which ensure that the capital is being used optimally. These are various other steps c an be taken by the management so that they can get good returns by making proper use of available financial techniques to analyse a firm s position from time to tim e and modify their investment strategies so that they can get maximum returns fr om the investments that are part of their portfolio. References Baker, H. Powel, G. (2005). Understanding Financial Management: A Practical Guid e. 1st Edition Blackwell Publishing Ehrhardt, M. Brigham, E. (2010) Financial Management: Theory And Practice 13th E dition Joe Sabatino Fabozzi, F. Peterson, P. (2003). Financial Management And Analysis.2nd Edition. New Jersey. John Wiley & Sons Lasher, W. (2007) Practical Financial Management.5th Edition. RR Donneley McMillan, E. (2010) Not-for-Profit Budgeting and Financial Management. New Jerse y 4th Edition John Wiley & Sons Puxty, A. Dodds, J. (2008) Financial Management: Method And Meaning. London Van Nostrand Reinhold Sottini, M. (2009) IT Financial Management: Best Practice. Zaltbommel 1st Editio n Van Haren Publishing Tennant, J. (2008) Guide To Financial Managemen.t London Profile Books Van Horne, J. Wachowicz, J. (2008) Fundamentals of financial management Prentice Hall 13th Edition Financial Times