Financial Analysis linking managerial actions with results

Financial Analysis Your role is that of financial analysts and your task is to: Prepare an annual plan Analyse the last year’s results Analyse the next year’s projection Decide financial needs Select the right options

The Business Situation A typical manufacturing company Cost inflation is about 5% As is the market growth You have several options to choose from E.g. –Change Prices –Enter New Markets –Launch New Products You have a total of 27 to choose from

Financial Information A computer model will do the arithmetic needed to calculate: –A Profit & Loss Account –The Balance Sheet (assets & liabilities) –Other Published Data And –Key Measures –Business Type –Profitability –Financial Strength

Business Objectives When developing your plan you need to consider objectives in terms of: –Profitability –Growth –Survival And decide which measures you wish to use and what are going to be the criteria.

Your Task Your task involves the following: –Familiarisation –Determine strengths & weaknesses –Determine needs –Investigate the options available –Create plans –Select the “best” plan –Compare and discuss results

Documentation You have the following –Financial Analysis Explains your task and using the simulator –Financial Options Lists & describes your options –Financial Definitions A dictionary of financial terms –Financial Measures An explanation of measuring a business using money.

The Simulator Initially identify yourself with a team name (that can be used to recover your plans after recessing.) Then from the menu: –Review Current Plan –Compare Plans –Explore Options –Create Plan –Show Influences –Recess Planning

Review Current Plan Display –Last Year & Current Plan, Difference & % Difference Report Options –Options in the Plan –Profit & Loss Account –Assets –Liabilities –Other Published Data –Key Measures –Business Type –Profitability –Financial Strength

Compare Plans Same display options as when Reviewing the Current Plan But the plans are shown side by side in a table.

Explore Options This allows you to investigate each option separately before combining into a plan. –Select Option to investigate –Test your knowledge of what results are effected. –See the monetary impact of the Option on results.

Create Plan Involves combining one or more of the options to create a plan. But –some of the Options are mutually exclusive –You cannot create more than 10 plans and so think very carefully before you proceed

Show Influences This allows you to move backward from a measure to find how results need to change E.g. To increase Profit before Tax you might –increase Sales or Turnover –reduce Cost of Sales, Distribution Costs, Administration, Interest Paid or Other Costs or all of these.

Observations Think before you act (do not waste your plans) Ask for help if you need it There is no right or wrong answer (your best plan will be the one that best meets the financial objectives you decide) Enjoy the challenge