Financial Decision-Making module

End of Module Assignment

Introduction

In the second half of this Financial Decision-Making module, you have studied many aspects of how organisations manage their financial decision making.  You have looked at risk, capital structures, sources of finance and decisions relating to strategic investment.  You have also studied interpretation of financial statements and accounting information systems. 

  • The aim of this End of Module Assignment is to synthesise these topics together with the opportunity for you to evaluate your organisation or one you are familiar with or have an interest in.  If your own organisation does not appear to be suitable, there is a wide range of organisations that have information in the public domain, you could take a look at the listed companies in the FTSE 100 or FTSE 250 or a similar market in your own country.  Your should seek approval from your tutor for your choice of a suitable organisation and you should avoid banks and other financial institutions, as these have very different capital structure to a service, retail or manufacturing organisation. 
  • Choose a limited company (no financial institutions/or banks)
  • Gather financial data/ financial statements (annual accounts)
  • 2500 words total
  • Follow the structure of the assignment carefully
  • Address all parts of the question
  • Have a brief introduction and conclusion
  • Use quality sources for reference

Please select an organisation of your choice in order to answer all parts of the EOMA below:

Part a (1,000 words)

  1. Critically evaluate the capital structure of your chosen organisation and discuss whether this capital structure is aligned to the organisation’s strategic goals. 
  2. For example, does your organisation have a greater degree of debt or equity (or its equivalent in the case of not for profit or public sector organisations) and how does this impact upon the gearing of the organisation? 
  3. You should also consider how the organisation views risk and return (or its equivalent in the case of not for profit or public sector organisations).

   CAPITAL STRUCTURE

 Consider sources of funding i.e.

  • Internal v external sources
  • Debt v equity
  • Discuss Advantages and disadvantages
  • Outline the impact on business performance

     Focus points:

  • Equity poses greater risk to an investor
  • Equity poses less risk to the company i.e. dividend does not have to be paid
  • Note Debt is tax deductible: cheaper to company plus risk to investor as they are guaranteed their return
  • Note -the greater the level of debt, the greater the risk
  • Internal source of funding long term could be retained profits which is:

less risky;

easier to access but takes time to accumulate and there is no guarantee this will happen

consider the impact on the company and shareholders both short term/ long term

Part b (1,000 words)

Critically assess the organisation’s financial performance and its overall approach to managing stakeholders’ expectations.  This should include some interpretation of the financial statements and any other information you consider relevant.

Use ratios to assess the financial performance;

  1. Profitability Ratios
  2. Liquidity Ratios
  3. Gearing Ratios

Part c (500 words)

  1. Discuss how the issues you have explained in part a) and b) above might be addressed in terms of improvements or recommendations. 
  2. How might your recommendations result in more effective financial decision making for your organisation?

Consider balanced scorecard system

Value chain

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