Assignment Guide for Finance for Strategic Managers

Assignment Guide for Finance for Strategic Managers

1. Understand the role of financial information in business strategy

Need for financial information

Assessing finance requirements, obtaining finance, reporting to owners/ shareholders/ stakeholders, setting and meeting targets, appraising new projects, managing risk, internal versus external need

Business risks

Strategic and market, compliance, operational, risk modelling

Financial information

Profitability, cash flow, business value, financial stability, costs projections

2. Be able to analyse published financial statements for strategic decision making purposes

Published accounts

Purpose of published accounts – provide information to shareholders/stakeholders; users of published accounts – e.g. shareholders, potential shareholders, managers, employees, lenders, creditors, suppliers, customers, community, competitors; annual reports (including main financial statements, director’s report, audit report, notes to accounts etc.); main financial statements (statements of financial position, income statements, sources and statements of cash flows); internal management accounts versus published financial accounts; structure of statements – content, requirements; weaknesses of published accounts

Interpretation

Comparisons between years, comparisons between companies, industry comparisons, benchmarking, reasons for using ratios; difference between capital and revenue expenditure (definitions, decision making, treatment in financial statements)

Ratios and how to interpret them

Profitability, liquidity, efficiency, capital, investor, limitations of ratio analysis

3. Understand how businesses assess and finance non-current assets, investments and working capital

Long and short-term finance

Definitions of long-term and short-term, the importance of matching finance to project

Sources of finance

Range of sources, external and internal sources, role of markets and government, long-term and short-term, advantages and disadvantages of each source, implications of each source for financial statements e.g. gearing

Cash flow management

Cash flow forecasts, managing inventory, trade payables, trade receivables etc., budgetary control processes – budgets and variances – how to interpret them and investigate differences

Investment appraisal techniques

Net present value, discounted cash flows, internal rate of return, payback, accounting rate of return, cost benefit analysis, value for money

4. Understand different ownership structures and how they influence and measure financial performance

Ownership structures

Sole trader, partnership, limited company, public limited company; other less-used forms: charities, limited by guarantee, co-operatives, public sector organisations; international equivalents, financial implications (share structures, availability of finance); legal requirements: company law, business law; accounting standards and corporate social responsibility

Accountability and roles

Stakeholder interests, control issues, shareholder versus sole trader, manager and owner, decision making interests, organisation strategy

Unit 7.4 Finance for Strategic Managers

Level 7 15 Credits

Suggested resources

Texts

Dyson, J.R., Accounting for non-accounting students Financial Times/Prentice Hall 2010

General accounting text for non-accounting students.

Horner, D., Accounting for Non-Accountants: A Manual for Managers and Students Kogan Page 2008

Accountancy text covering main accounting issues from business point of view.

McLaney, E. and Atrill, P. Accounting: An Introduction Financial Times/Prentice Hall 2010

Accountancy text with good numerical examples to demonstrate techniques and for students to practice techniques.

Arnold, Glen, Corporate financial management, Harlow; Pearson Education, 2008

Birt, Jacqueline and others Accounting Milton, Australia; John Wiley, 2008

Marsh, Clive, Mastering financial management Harlow; Financial Times Prentice Hall, 2009

Internet Resources

Financial Times website provides financial analysis and information about publishes accounts including international information www.ft.com

Beyond Budgeting Round Table – discussions about budgetary control http://www.bbrt.org/

Websites of larger organisations in UK and internationally will provide financial and other information about business organisations

Unit 7.4 Finance for Strategic Managers

Level 7 15 Credits

Suggested resources

Texts

Dyson, J.R., Accounting for non-accounting students Financial Times/Prentice Hall 2010

General accounting text for non-accounting students.

Horner, D., Accounting for Non-Accountants: A Manual for Managers and Students Kogan Page 2008

Accountancy text covering main accounting issues from business point of view.

McLaney, E. and Atrill, P. Accounting: An Introduction Financial Times/Prentice Hall 2010

Accountancy text with good numerical examples to demonstrate techniques and for students to practice techniques.

Arnold, Glen, Corporate financial management, Harlow; Pearson Education, 2008

Birt, Jacqueline and others Accounting Milton, Australia; John Wiley, 2008

Marsh, Clive, Mastering financial management Harlow; Financial Times Prentice Hall, 2009

Internet Resources

Financial Times website provides financial analysis and information about publishes accounts including international information www.ft.com

Beyond Budgeting Round Table – discussions about budgetary control http://www.bbrt.org/

Websites of larger organisations in UK and internationally will provide financial and other information about business organisations

Unit 7.4 Finance for Strategic Managers

Level 7 15 Credits

Suggested teaching and learning activities

LO and Topic

Time

Suggested activities

Resources and related case studies

LO1: 1.1, 1.3

Need for financial information and types of financial information

Group workInitial discussion to consider the questions of (1) why businesses need financial information, (2) who needs financial information about the business and (3) what financial information they need. Could be given a case study of a business that are making decisions about expansion/ takeover/downsizing etc – this should be related to current/ local issues and economic climate. Alternatively, given a series of business scenarios. Group report back to whole class.

Delivery:

Need for financial information to cover information for: assessing finance requirements, obtaining finance, reporting to owners/shareholders/ stakeholders, setting and meeting financial targets, appraising new projects, managing risk, internal v external need for information.

Types of financial information to include information on: profitability, cash flow, business value, financial stability, cost projections.

Other Reading-Strategic corporate finance

Davies, Tony; Boczko, Tony; Chen, Jean

Maidenhead; McGraw Hill, 2008

Stakeholders in marketing and finance – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=403988&direct=1

McCain case study – http://www.thetimes100.co.uk/download-mccain-foods-edition-13-full-case-study_101_333_839

Kellogg’s case study – http://www.thetimes100.co.uk/case-study–new-products-from-market-research–6-388-1.php

Davis case study – http://www.thetimes100.co.uk/case-study–planning-a-budget–111-381-1.php

Financial strategy – http://managementhelp.org/organizationalsustainability/index.htm

LO1: 1.2Risk

Group workInitial discussion to consider the question of risk – what risks exist in business and financial decision making? Could be given a series of scenarios that illustrate different risks. (scenarios should be based on current, local issues. E.g. could look in financial press for issues of risk. Report back to whole class.

Delivery:

Business risks to include: strategic and market, compliance, operational

Identifying risks and scoring risks

Group and individual work

Case study scenarios: identify key risk areas for different businesses (from business decision making texts/ accounting texts/financial press etc.)

Risk Management – http://managementhelp.org/riskmanagement/index.htm#anchor1745236Investment risk – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=397357&direct=1

Strategic Decision-Making in the Face of Uncertainty – http://www.ftconferences.com/userfiles/file/FT_Oliver_Wyman_whitepaper.pdf

LO2: 2.1/2.2

Published accounts

Delivery on purpose of accounts, users (shareholders, potential shareholders, managers, employees, lenders, creditors, suppliers, customers, community, competitors, government etc), annual report contents, main financial statements.

Group or individual work

Each group or individual is given or obtains a set of published accounts. Students look through accounts, identify certain information (list given by tutor e.g. operating profit, turnover, shareholders’ funds etc.) and draw some conclusions about what the business does, how financially sound it is and what has happened between last year and this year. Note they should not need to carry out any calculations – just determine what they can from the accounts. Students may need clues and guidance during the exercise. They write a short report to present back to the whole class.

Note: accounts of larger businesses are generally available on the internet or in hard copy from the businesses themselves. Interest might be added by looking at businesses all in one sector or at businesses linked in a supply chain.

Delivery:

Interpretation: need to compare with other years, other companies, industry standards; benchmarking.

Weaknesses of accounts: snapshot, may not give all required information e.g. may not be detailed enough.

Group or individual work

More formal interpretation of accounts following input from tutor about what to look for in accounts. Report back to whole group.

Other Reading-Corporate financial management

Arnold, Glen

Harlow; Pearson Education, 2008

– Accounting

Birt, Jacqueline; and others

Milton, Australia; John Wiley, 2008

Introduction to the context of accounting – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=397329&direct=1

Guide to financial statements – http://www.baruch.cuny.edu/tutorials/statements/

Influences on accounting regulation – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=397381&direct=1

Accounting Standards – http://www.iasplus.com/standard/standard.htm

Self-Study – http://managementhelp.org/businessfinance/index.htm

Financial statements – http://www.college-cram.com/study/finance/chapter/financial-statements/ and http://www.investopedia.com/university/financialstatements/#axzz1VrTUMO5u

FTSE 100 Accounts – http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/indices/constituents-indices.html?index=UKX

Oxfam Annual Accounts – http://www.oxfam.org.uk/resources/downloads/reports/report_accounts09_10.pdf

Glasgow City Council Accounts – http://www.glasgow.gov.uk/en/YourCouncil/Finance/FinancialStatements/

East Midlands Ambulance Accounts http://www.emas.nhs.uk/about-us/publications/-

Video on benchmarking –http://www.youtube.com/watch?v=xuZOtKmGB1M

US company Data – http://library.indstate.edu/tools/tutorials/company/

NHS trust accounts: A guide for non-executives – http://www.audit-commission.gov.uk/health/audit/financialmgmt/nhsaccountsguidesfornonexecutives/Pages/nhstrustaccountsaguidefornonexecutives.aspx

LO2: 2.3

Ratio analysis

Delivery:Ratios to include: profitability, liquidity, efficiency, capital, investor.

Individual work

Practice of ratio calculation on questions (from accounting texts) and on real published accounts.

Group work

Analyse set of published accounts (can use same ones as in previous exercises) and prepare a short presentation interpreting the ratios they have calculated. Presentations to be made to whole group.

Whole class

Listen to group presentations and make decisions about which companies they might choose to invest in and why.

Individual work

Follow a chosen business in the financial press over a few weeks or months and log changes in share values etc. and causes of these.

(Could be made into a share game where students choose which business(es) they want to ‘invest’ in and follow them in the financial press to see how their worth and wealth changes over time. Winner is the one whose company performs best – which can in itself be the source of useful debate!)

Delivery:

Limitations of ratio analysis: need comparisons for ratios; ratios can vary industry to industry, company to company, depend on company policy, affected by economic climate etc.

Group or individual work

Identify items in financial press that may affect ratios of businesses and report back to group.

business financial terms and ratios definitions – http://www.businessballs.com/finance.htmExample P/L for comparison – http://www.businessballs.com/freepdfmaterials/trading_summary_template.pdf

Ratios video –http://www.youtube.com/watch?v=rHRDcFpYIPw

LO3: 3.1, 3.2

Types and sources of finance

Group or individual workInitial exercise to research sources of business finance and their uses. (this can be done on the internet or through financial institutions).

Delivery: long and short-term finance, definitions,

importance of matching finance to project, sources of finance, range of sources, external and internal sources, role of markets and government, long-term and short-term, advantages and disadvantages of each source, implications of each source for financial statements e.g. gearing

Whole class

Ask a speaker from a bank to talk about business and commercial banking.

Group or individual work

Give students business scenarios and ask them to match suitable finance to different projects.

Group or individual work

Case studies where learners have to write a report to advise a business on suitable sources of finance.

Note: case studies and scenarios are available ion most accounting text books and on the internet.

Other Reading -Mastering financial managementMarsh, Clive

Harlow; Financial Times Prentice Hall, 2009

Long term finance- http://www.nos.org/srsec319/319-19.pdf and http://www.slideshare.net/wizkidrx/sources-of-long-term-finance

Short term finance – http://www.nos.org/srsec319/319-18.pdf

Equity finance – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=397385&direct=1

Information on the markets – http://www.bloomberg.com/markets/ and http://uk.reuters.com/

International Market links – http://fisher.osu.edu/fin/cern/cernpop.htm

Introduction to financial services – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=401804&direct=1

The financial markets context – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=397361&direct=1

LO3: 3.3

Cash flow

3.3

Delivery: preparing cash flow forecasts, managing inventory, trade payables, trade receivables etc.

Individual work

Preparing cash flow forecasts from given information. (Accountancy texts can be used to source exercises).

Group work

Discussing cash flows and identifying financial decisions to be made. Looking at how cash flow might be improved.

Group or individual work

Case study where students need to advise on management of cash flow. (case studies can be sourced from accounting texts)

Cash Flow- http://www.businesslink.gov.uk/bdotg/action/layer?r.i=1076801242&r.l1=1073858790&r.l2=1084596842&r.l3=1073924763&r.s=sc&r.t=RESOURCES&topicId=1073924763Images of cash flow – http://www.google.co.uk/search?q=cash+flow&hl=en&biw=1366&bih=559&prmd=ivnsb&tbm=isch&tbo=u&source=univ&sa=X&ei=mppTTrfbCcO88gPH1oDxBQ&sqi=2&ved=0CIsBELAE

Working Capital video –http://www.youtube.com/watch?v=o5X1F_uDBi4

LO3: 3.3

Budgetary control

3.3

Delivery: Budgetary control processes – budgets and variances – how to interpret them and investigate differences

Group work

Discussion about purpose and importance of budgets and how budgetary control works.

Individual work

Calculating variances from budget and reconciling budget and actual profit. (exercises can be sourced from accounting texts)

Group work

Discussing the interpretation and investigation of variances. Bringing answers back to whole class for further discussion.

Beyond Budgeting Round Table – discussions about budgetary control http://www.bbrt.org/

Advantages and disadvantages of budgeting http://www.teachmebusiness.co.uk/page142/page147/page156/assets/Budgeting.pdf

Calculating variances:

http://www.futureaccountant.com/standard-costing-variance-analysis/

http://www.accountingcoach.com/online-accounting-course/30Xpg01.html

LO3: 3.4

Investment appraisal

3.4

Investment appraisal techniques to cover: net present value, discounted cash flows, internal rate of return, payback, accounting rate of return, cost benefit analysis, value for money.Individual work

Calculations using different methods of investment appraisal.

Cost of Capital – http://openmultimedia.ie.edu/openproducts/coste_capital_i/coste_capital_i/marcos.htmlInvestment terms – http://openmultimedia.ie.edu/openproducts/mat_fin_i/mat_fin_i/marcos.html

Investment options – http://ocw.mit.edu/courses/sloan-school-of-management/15-414-financial-management-summer-2003/lecture-notes/

Cost Benefit Analysis – http://decide-guide.com/cost-benefit-analysis-model/

LO4: 4.1, 4.2

Business ownership structures

Delivery:Ownership structures: sole trader, partnership, limited company, public limited company, charities, limited by guarantee, co-operatives, public sector organisations, international equivalents.

Financial implications: share structures, availability of finance.

Legal requirements: company law, business law.

Accounting standards and corporate social responsibility.

Accountability and roles: stakeholder interests, control issues shareholder vs sole trader, manager and owner, decision making interests, organisation strategy.

Group work

Advantages and disadvantages of main ownership structures: sole trader, partnerships, companies (or international equivalents where appropriate). Groups to discuss and present back to whole group.

Group or individual work

Company analysis – choose one organisation and look at implications of structure for finance, legal compliance, accountability etc.

Influences on corporate governance – http://openlearn.open.ac.uk/mod/oucontent/view.php?id=397377&direct=1Public Sector organisations – http://www.publicnet.co.uk/links/public-sector-organisations/

Financial management and reporting in central government – http://www.hm-treasury.gov.uk/psr_reporting_centralgovernment.htm

Charities – http://www.charity-commission.gov.uk/

Self-study – http://managementhelp.org/nonprofitfinances/index.htm

American resources – http://managementhelp.org/businesslaw/enterprise-corporate-laws.htm

Social Enterprise – http://managementhelp.org/socialenterprise/index.htm

Cooperatives – http://en.wikipedia.org/wiki/Cooperative#Cooperatives_as_legal_entities

Building Societies – http://www.bsa.org.uk/

NHS Financial Year 2010/11 – http://www.audit-commission.gov.uk/nationalstudies/health/financialmanagement/Pages/20110811nhsfinancialyear1011.aspx

ethical leadership, decision-making, and organisations – http://www.businessballs.com/ethical_management_leadership.htm#ethical_decision_making