Financial strategy Essay Example | Topics and Well Written Essays - 1250 words

Financial strategy - Essay Example In the recent past, companies are adopting the value based management approach which is a formal systematic approach used in managing companies with an aim of achieving the objective of maximizing value creation and shareholder value (Chapman, Hopwood, & Shields, 2009, p. 1248). Value based management focuses on the key drivers of value thus helping companies achieve their objectives (Starovic, Cooper, & Davis, 2004, 2004, p.15-17). Increasing focus on core competencies has forced companies to outsource some services to ensure that they remain relevant in terms of their revenues and expenditure in comparison with their competitors. Knowing a company’s position is important because it is useful in defining and redefining strategies to improve profit margins and to capitalize on company’s strengths to enhance shareholder value creation (Starovic, Cooper, & Davis, 2004, 2004, p.10-17). Various methods have been used to measure the shareholder’s value but the most co mmonly used are the profitability analysis, Strategic Profit Mode (SPM), and the Economic Value Added (EVA) method. One of the common methods used to measure profitability is Return On Capital Employed (ROCE) which is the operating profit after tax divide by the net capital employed. However, a major criticism on this method is that it does not measure operating profits and capital employed the way investors do. Investors are concerned about economic profits and the amount of debt and equity invested in the business but these amounts may disagree with those used in company’s financial statements because of the accounting practices in use. For instance, accounting reserves which have to be accounted for in financial statements tend to understate economic profits and the amount of equity capital actually invested in the business. ROCE provides little guidance on the profitability level because of its shortcomings. Given the shortcomings of ROCE, SPM and EVA models are preferred because they enable the company to focus on shareholder value and provide a long-term orientation in their analysis. SPM and EVA are reliable, consistent, and therefore preferred over ROCE method. The Strategic Profit Model (SPM) measures the Return On Net Worth (RONW) of a company which is a tool used to measure the changes in the shareholder value in an organization. RONW is made of three components, which include net profit, asset turnover, and financial leverage. These components are used in the calculation of RONW and they can be controlled by the managers of a company (Viswanadham and Luthra, 2005, p.478). Net profit is the difference between sales and expenses and from it net profit margin is calculated which measures how efficiently a company manufactures and sells its products. Net profit margin is the net profit as a percentage of sales. Asset turnover is the sales divided by the total assets of a company and it shows how efficiently a company employs its assets to achiev e a given level of sales. The Return On Assets (ROA) is arrived at by multiplying the net profit margin with the asset turnover and it relates the profitability of a company to the value of assets employed. The financial leverage of a company provides the relationship between the total

Professional or academic experience Essay Example | Topics and Well Written Essays - 500 words

Professional or academic experience - Essay Example The aim was to uncover the hidden talent in a child and nurture it. The task was daunting; we were four of us, we had few resources and were expected to make a success of a venture the size of which was intimidating enough without the added burden of our regular school curriculum and teaching assignments. The only factor in our favor was that we had a couple of months to plan it. However there were a thousand things that could go wrong and the biggest problem was raising the funds to conduct a contest of this size. The computer department of my school was special because at that time very few schools could boast of having even a few computers much less a computer section. I was the head of the department and had helped set it up. The school had organized many inter-school contests in such varied fields as dance, music, debates, quizzing etc. Naturally since we had such a hi-tech computer section we were expected to organize an inter school computer contest. As head of the department this was solely my responsibility and I had only a couple of months to plan it, and show results. I had to do some fast thinking about how I would go about this with the few resources available – both financial as well as in terms of man power. The first thing I did was call a meeting of my department. It was a brain storming session where every idea was put down on paper and discussed threadbare. We finally had a broad outline of the kind of contests we could organize for each of the various age groups that would take part; as well as a rough plan of dates that would not interfere with the school curriculum and exam timetable. We decided to invite an outside party to conduct the contest to make it absolutely fair and transparent. This would involve being able to convince a third party with the necessary credentials and expertise to help out. The name of the contest was very important and had to be decided early. After