Financial Performance Management

FINANCIAL PERFORMANCE MANAGEMENT


Student Name: Hira Bashir

Student Id: 105

MBA (3.5 years)

University of Sargodha

This assignment is related to business performance and strategic management process by using finance in Dell. It also discussed the importance of finance in business and managed the tools to develop the new project in Dell.


Table of content Financial performance management................................................................................................3

Introduction and background of Dell.............................................................................................3

Task 1: understand the impact of financial resourcing organization’s performance..................3

1.1 Examine the needs for financial resources within a strategic plan...............................3

1.1.1 Types of Financial resources required...............................................................................3

1.1.2 Importance of finance in strategic planning.......................................................................4

1.1.3 Working capital of Dell..........................................................................................................4

1.1.4 Strategic planning of Dell.....................................................................................................5

1.2 Critically evaluate the impact of financial resource decision making on business strategy.............................................................................................................................................5

Task 2: Understand how to use the appraisal methods to manage financial resources...........5

2.1 Critically analyse and evaluate how alternative strategies investment opportunities are assessed using investment appraisal methods..........................................................................6

2.1.1 Net present value..................................................................................................................6

2.1.2 Discount rate..........................................................................................................................6

2.1.3 Benefit and cost ratio............................................................................................................7

2.1.4 Payback period......................................................................................................................7

2.1.5 Multiple criteria analysis.......................................................................................................7

2.2 Examine data to used when making decisions about the use of financial resources and justify recommendations about the use of financial resources.................................................7

Task3: Know how to assess the performance of organization.....................................................9

3.1 Justify the selection of data to use in analysing business performance...........................9

3.1.1 Profitability ratios...................................................................................................................9

3.1.2 Liquidity ratios......................................................................................................................10

3.1.3 Efficiency ratios...................................................................................................................11

3.2 Critically evaluate the performance of strategic decision making analyse business information to make the substitute about improving business performance.........................12

Task 4: Understand how to use management accounting method to manage resources effectively...........................................................................................................................................13

4.1 Appraise methods by which financial resources are allocated, managed and controlled. Analyse the budget and budget out turns...............................................................13

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4.2 Systematically analyse costing report and compare the organizational performance against the cost and budgets......................................................................................................14

4.3 Examine actions to be taken in response to costing and budgetary information...........15

References

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Financial performance management

Introduction and background of Dell

Dell was commenced in November, 1984 just based on information technology in America. Dell established personal computers in 1986 and developed the criteria to shape the small business and enterprise computer system. Dell consists to produce software as well as hardware and take leader possibilities to innovate the products and services (McGraw-Hill Companies, 1999). The Dell produced multiple products to promote business and prepare the profile. Services are provided and different notebooks and printers were produced but know in producing mobiles. Dell holds the industrial market share that offered 3.5 million shares initially in market. The Dell project introduced different modules and launches smart phones with china mobile and designed the enterprise portfolio that has different selling products in a product line (Reeeves & Deimler, 2011). Different types of products introduced different products having different functions, colour and prices. Customers’ preferences are more important in laptop selection. Dell has differentiation strategy that based on customer preferences which include workshops, network and different items of mass communication introduce to enhance the market share and direct the sales needs to compute the solution (Hoskison et al. 2011).

Task 1: understand the impact of financial resourcing organization’s performance

1.1 Examine the needs for financial resources within a strategic plan

Although financial resources are requirement of every company while preparing strategic planning for organization and managed activities that are used to focus on operations to ensure the employees working in organization and to established the responses to get suitable outcomes that can be adjust in organization to change the environment. Dell put effort to take decisions in the company and guide the organizational changes that are focused on effective planning and going towards progress (McGraw-Hill Companies, 1999).

1.1.1 Types of Financial resources required There are many different methodologies to develop the strategies to develop change in organization and planning the rules that has similar patterns to assess need finance. Financial resources have two types as

Internal sources: internal sources include reserves of Dell and all cash inflows develop from sales

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External sources: external sources include all the loans, sale debenture to get finance and selling shares of company are external sources of company.

The strategic planning associated with non profit professional but still need finance to overcome the problems being used in the Dell Corporation (McGraw-Hill Companies, 1999). Financial resources are important in phase of planning, company focus on what type of sources are available and future management can be done by utilizing these resources and also tell about implementation of strategy by using sources (Reeeves & Deimler, 2011). Information about sources availability and plan according to that play a vital role in managing business and considered the drivers to currently focus on framework (Abell, 1980). The important and financial consideration of strategic management is to comply with the organizational development because of financial management tools and operations for developing the strategies in Dell business.

1.1.2 Importance of finance in strategic planning No doubt Dell is an information technology company need change day by day as technology launched by competitors such as Apple, HP etc so strategic planning and resources are important. Manager planning the stagey and properly formulate in business to operate differently within limit and plans to afford. After planning phase it is important to formulate the strategy and get finance from different sources may be internal or from external to fulfilled the obligation and achieved goals (Clark & Krentz, 2004). To properly formulate strategy Dell manager need to properly estimate the budget for new strategy and estimate the assets required and liability to develop the plan in shape of loan and income of staff members and trained them according to project requirements. All the operations are fulfilled to achieve the sub goals of Dell, in real sense achieving main goal of Dell. It is very important to create business strategies to promote business and plan the financial budgets for whole project or for whole year (McGraw-Hill Companies, 1999).

1.1.3 Working capital of Dell Financial resources are important in the planning process of organization because Dell need to promote marketing factors and change overall strategy in business. Dell is a professional company that can always struggle for market and get market share as a leading firm (McGraw-Hill Companies, 1999). Working capital of firm able to provide balance that allows the users to develop the revenues and get debt to develop new project. Networking capital is important to measure the operations that are available for company and growing the business by promoting strategies and utilizing finance too. The driving force that is special to commit Dell that important for business management and strategy formulation and implementation is forecasting. About $300 million or less managed in the business to promote and implement new strategy (Dell.com).

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1.1.4 Strategic planning of Dell Technology experts of Dell provide range of technologies and visit EBC to create the plan to achieve goals of organization. Implementing strategies are related to different management techniques to shape and compute the management of electronic and wireless activities in record too. Dell computer reached achieve the different strategies to manufacture computer and fulfilling the order receives from customers. Business needed three partners as suppliers and customers and computer designer to build the process of planning and manufacture the customization strategies (Dell.com).

1.2 Critically evaluate the impact of financial resource decision making on business strategy

Financial resources plays an important role in business decision making process and finance is an indicator for managing the strategies in Dell Corporations and attributable to grow the marketing strategies and managing the market capitalization to increase the employees and produce new product and services that enable to get opportunities. Dell Corporation financed the debt and equity for the cost of different items to introduce the ownership in exchange the stock and investors. Dell introduced the strategies due to lack of planning and review the SWOT analysis and able to spend the obstacles to rise the personal orders (McGraw-Hill Companies, 1999). Dell refused different components due to shortage of the money. Important finance in decision making that formulate and implement the strategies for Dell and backbone of Dell is financial sources to owns the powerful tools that will able to operate business properly. Dell introduce the new technology and able to spend financial resources to get the success in business. No doubt human resources are not financial resources but need finance to train them according to requirement of business and new strategies. Salaries are also paid to workforce to get desirable results from them (Bower, 1982).

Business need financial and operational resources to get the powerful operations in a business and has an ability to perform well in business that permits investment and prices availability that is associated with technology. Wastes are reused by implementing the strategies and able to get finance from them. The capital budget required to investing in technologies and reduced the overall process to improve the investment to get proper return from them (Foss, 2009).

Task 2: Understand how to use the appraisal methods to manage financial resources

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2.1 Critically analyse and evaluate how alternative strategies investment opportunities are assessed using investment appraisal methods

The main purpose of systematic appraisal of different investment strategies of Dell has greater impact on decision making process and currently evaluates the expenditures and projects of company. The documents are prepared for all projects and techniques to analyse the information and found the methods of appraisal in business management (Ginsberg, 1989). The appraisal method of strategies is to follow the cash flows in the Dell to recommend the value of money. Dell gets benefit from cost and take the account that occur the concept of calculating the investment by following ways (Mayer, 1991).

2.1.1 Net present value NPV is appropriate method of analysing cost of the project and negative values

should be taken place because of initial investment and if future values or return

increase than value of NPV may be positive. In this method of project selection and

appraisal Dell analyse the initial investment and also determine the return get from

investment in future. NPV method ranked the projects having same payback period

and able to analyse the profitability in near future (Russell. A,1970).

Advantages

Appraise all estimated projects

Compare the project investments

Disadvantages

Project must be mutually exclusive

Ranked the projects in ascending or descending orders

Small project couldn’t be analyse may be give more return in future.

2.1.2 Discount rate

Concept of discount rate is associated with NPV as it is used to convert the cost into

present value and calculate on bases of

Time preferences

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Opportunity cost of capital

And last is weighted average method

The discount rate method should be effective to select the project from all estimated

projects (Baroum & Patterson,1996).

2.1.3 Benefit and cost ratio

The benefit and cost discounted revenues are divided into investments and able to prefer the ratios that are greater than one in each project. The project having less BCR should not be able to proceed in future for benefit (Gray, 1995).

Advantage

It is a simple method

Use for appraise project and help in decision making

Generate the project capacity due to having a fixed scale

2.1.4 Payback period This method used to identify the amount which initially invested return back in how much period if period is less than project is perfect for investment. Ranks the project due to their return and money takes to earn the profit. The payback period is method of discounting the amount of time and recovers the cost that is perfect indicator of analysing the performance (Gray, 1995).

2.1.5 Multiple criteria analysis This process is established to create the project by achieving goals of Dell. The programmes and communities assessed by utilizing any of above way and solely mentioned the values in term of money the importance o this process is to solve the common problem and reduced agency cost of company (Gray, 1995).

2.2 Examine data to used when making decisions about the use of financial resources and justify recommendations about the use of financial resources

Dell is an organization of technology want to make the business decision best to compete into market by their strengthen competitors. Accounting information process recorded in reports and provided assessment to analyze financial transactions. Dell’s managers consider financial information to create the decisions about any new project or implement new strategy in business (Oliver, 1997). Decision making

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system focused on operations that related with new projects. Following are information required by company for decision making

Balance sheet information that tell about the assets available for creating and developing new projects

Determine the profitability by viewing profitability ratios of company Review liquidity of company and liquidity of project as well Information about new assets and loans are required for new project Information about potential customers, suppliers about material and sale of

new product into market Wages of employees required for managing new project (Patton, 1999)

The important tool of financial resources is to formulate strategy into business and process explained to employees and other line managers into business. Strategy formulation is the process required finance in different plans and factors are very powerful in business strategy. Dell want to invest into new technology development process such as new smart phone introduce into market they must hire experts, engineers and trained them according to their process (Schendel & Hofer, 1979).

In case of low financial resources Dell limit the project but sometime take loan to compete into market and reduce the cost of each item by learning curves process or by changing the suppliers who provide quality product at low cost. The business decisions are steadily helps to promote the organization by using the following methods (Patton, 1999)

Increase production by reducing fixed cost Increase profitability by getting material from suppliers at low cost Learning curve technique used Assets purchase which work for long time duration

Financial statement

It is an important and difficult task for Dell to invest in new project because manager or strategic planner specify the options and determine the cost of variable and fixed cost of production as well. Balance sheet analyse the available resources and modify methods to determine the cost of different objects. The evaluation of financial statement allowed an advisor to understand the financial position of business and effectively accomplished the project may be new and suggest the strategy to implement after formulation. Financial statement provided the criteria to inform about the cash flow and determine the sale price of each item. Future performance of Dell based on strategies to receive the project expected result (Shook, 2008).

Recommendation

To increase the profitability of company it is important to improve customer services to evaluate new projects and increase the business performance. I am going to suggest that manager thoroughly evaluate internal and external sources of finance

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and analyse the financial statement that help advisors to quickly provide the values and compare with historical trend. The process can be improved by evaluating the ability of different proportions of cash flows may be inflow or outflow.

Second and important suggestion is mass production reduce the fixed cost of company and focus on existing customer to determine the demand. The knowledge management services are provided to get awareness and offer warranty packages to increase loyalty and values of customers.

Task3: Know how to assess the performance of organization

3.1 Justify the selection of data to use in analysing business performance

The ratio analysis is important to assess the business performance, there are four major ratios that measure the financial statement performance and managed the liquidity, profitability, efficiency and coverage. Liquidity ratio considered the short term performance of Dell and actively managed the portfolio. Following are the ratio analysis tools

3.1.1 Profitability ratios Financial matrices that used to determine the business abilities to generate profit in Dell and compare them with expenses done on same profit, the specific period determine the ratio and ability to indicate the company’s well doing (investopedia, 2013). Some of profitability ratios are net profit ratio and gross profit ratios are given below.

Net profit ratio

$ m $ m

2012 2013

Net Sales 14,483 14,514

Profit before Tax 497 219

Net Profit /Loss Margin % 3.43% 1.5%

Net profit ratio is a key indicator of measuring profitability it is very useful to compare the ratio of 2013 with 2012 and analyse the similar industry too. The lower net profit value in 2013 means that new projects of company not work efficiently even the sales of products are high but due to increase the cost benefit of company reduced (Dell, 2012-13).

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Gross profit ratio

Gross profit ratio determine the operational profit of company and able to determine the actual earning of company.

$ m $ m

2012 2013

Net Sales 14,483 14,514

Gross Profit/Loss 2,689 3,138

Gross Profit /Loss Margin % 18.5% 21.162%

In the ratio analysis the percentage of business operation ratio is more than the dollar amount earned. The profit of Dell increased by increasing sales and to increase the profit the gross ratio increase in 2013 as compare to 2012. A higher profit means the business generate high level of revenue as compare to operating expenses. It enables the business to produce the inventory and reduce the cost of each item. In above profitability ratio of Dell the higher value as compare to competitors’ profitability is high (Dell, 2012-13).

3.1.2 Liquidity ratios Liquidity ratio tells about the working condition of company and how well company cover short term debt by utilizing the assets of company.

According to investopedia, (2013)

“A class of financial matrices is used to determine the company’s ability to pay off its debts obligation. Generally the higher the value of ratio, the larger the margin of company that possess to cover the short term debt.”

Liquidity ratios of Dell Inc are current ratio and quick ratio to determine the current efficiency of business.

Current ratio

$ m $ m

2012 2013

Current Assets 2,367 2,686

Current Liabilities 1,147 2,275

C.R= C Assets/C Liabilities 2.06:1 1.18:1

The higher ratio, the more liquid company is. The acceptable standard ratio of current ratio is 2; it is comfortable ratio greater than 2 Means Company has not enough project to invest for future ratios and less ratio from 2 mean that company has no enough assets to fulfilled current obligation of company.

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In Dell Inc the ratio of 2012 is more than 2 which is not suitable for company to get return in near future. The current ratio is efficiently facilitating the financial need of company that indicate the properly managed working capital in company (Meyer, 2002).

Quick ratio

$ m $ m

2012 2013

Quick Assets 1,726 2,539

Current Liabilities 1,147 2,275

Q.R= Q Assets/C Liabilities 1.50 1.12

In the above ratios analysis Dell Inc is in worst position in 2013 than 2012. The higher the quick ratio the better will be company position. The standard ratio of quick is 1 but in Dell the company get 1.12 and 1.5 in 2013 and 2012 respectively so that more ratios shows company has few more assets than current liability and is a good indicator for project managers. The Dell’s financial position is strong enough because liabilities have positive impact on the financial position (Meyer, 2002).

3.1.3 Efficiency ratios According to investopedia, (2013)

“The efficiency ratio can be calculated the turnover of receivables, the repayment of liabilities the quantity and usage of equity and general use of inventory and machinery”.

The efficiencies ratios of company are accounting receivable ratio and inventory ratio.

Account receivable ratio

$ m $ m

2012 2013

Net Sales 14,483 14,514

Accounts Receivables 676 689

ARCP= Avg Acc Rec/Annual sales ÷ 365 17 days 21 days

When accountable are collected from debtors these outstanding accounts will be

received after a specific interval of time. The comparison of sales and activity on

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collecting the variables from customers are expressed as an average and number of

days also calculated after which amount will be collected. In 2013 collection days of

Dell are low it means that data is collected after a specific interval and outstanding

variables or receivables to expressed the number of days before sales. This table

Dell collection period is low in 2103 means that and business is available funds on

time before purpose of receivables.

Inventory collection period

$ m $ m

2012 2013

Purchases 2,998 2,990

Inventory 624 146

IHP= Avg.Inventory/C.G.S × 365 19 days 20 days

The inventory holding period of Dell must be low that shown in the above table.

Financial performance of 2012 is better as compare to performance in 2013 because

the ratios are calculated based on investment and time period required for quantity

usage and include other machinery too (Gray, 1995).

The Dell can be performed well and efficiently as compare to their competitors and

ratios related to that shows the turnover efficiency of company. Dell’s efficiency

shows the improvement and increase the profitability of company by reducing the

cost (Gray, 1995).

3.2 Critically evaluate the performance of strategic decision making analyse business information to make the substitute about improving business performance.

Manager of Dell need all activities that helps to control processes of organization. The manager [perform crucial role in managing the activities and sure to make the plan that properly implemented in business. Strategic planning is the managerial and financial operations control the planning process that helps to develop the plan and control new projects of Dell (Gray, 1995). The ratios calculate in 3.1 shows the performance of Dell and able to perform well in business management strategies and show the liquidity ratio and leverage position of company. If company show higher ratio of debt to equity it means that Dell shows stability in the behaviours of company and grow in proper manners. The strategic decision making process of

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company helps to guide the employees and collect the data for strategic decision making. To collect the information and organized the interpretation process to analyse the performance of industry in relation to project in which company invested. The purpose of company is to ensure the time and neutral information to perform well in the business and make the policies to reduce expenditures (White, 1986). Following are the appraisal planning process steps as

To get opportunities and evaluate the information to articulate the business Helps to evaluate the programmes and planned the programmes properly Provide the platform to managed plan and performance of report to engage

the strategic planning process. Communicate the building plan and evaluate needs Evaluate the available information

Before launching the product into market it is important to prepare a prototype in relation to understand the Dell new item services and demand from customers too. Dell management able to identify ideal location in the variety of configurations and digital staff of doing business model and rearrange the process to continues staff to buy (White, 1986).

Task 4: Understand how to use management accounting method to manage resources effectively

4.1 Appraise methods by which financial resources are allocated, managed and controlled. Analyse the budget and budget out turns

To obtained the process of measuring the Dell performance and requirement that

able to create the measures and find the internal and external sources of managers.

These services measure the impact of low budget and goals to achieve in Dell and

number of programmes are able to give properly stated goals and efforts to carry out

the analysis. In decision making process managers are able to manage change in

Dell organization and assess the operational and financial performance by strategic

management plan. The finances and financial appraisal Dell allocated to managed

and control appraisal methods in variance and budgetary process to control and

managed the business (Simon, 1955).

Financial and budgetary control:

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Managers need to control the organization that managed the process of keeping

plan and necessary to control the actions that track heating the central tools to

ensure the planning and experimental sales are linking the expectations. The

financial position of Dell formulates the budget and creates the financial control to

plan income properly and operate the sales that are expected in business (Cameron,

2007).

Variance analysis

The difference between estimated budget and actual budget is called variance. The

variance is favourable when income is higher than expectation and expenses are

less than expectations. Dell manager use variance analysis tool to get the result

favourable and increase the profit from estimated budget process. Control is the

process that managed the business track and monitor to control the financial issues

to develop the continuous intervals (Stake, 1995).

4.2 Systematically analyse costing report and compare the organizational performance against the cost and budgets

Determine the cost of project which would be launched in near future and report

them into similar process to get analysis and create the proper budget that may be

estimated and measure the effectiveness of project. Cost allocation is a simple

process to develop the program and basically setup the system to allow the

programmes and managed the process effectively. This information tools are needed

to control the process effectively and manage analysis to control the cost and

manage business properly. Planning and budgeting is a special function to produce

the product and prepare the equipments and analyse the financial position of Dell

and prepare the budget by following ways (Litz, 1996). Following are the process of

managing budgeting as

Prepare the goal of new project

Analyse the resources to achieve the goals of organization

Negotiate budget in all departments of Dell.

Improve productivity

Tracking process and estimate the proper budget

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4.3 Examine actions to be taken in response to costing and budgetary information

The budgetary information is the process of preparing the budgets and plans the

new project properly and it is important to get the objects and then monitor the

performance of organization. The difference between actual and ideal position to be

corrected the measures and actions that should be taken. Budgetary performance to

generate the expenses that possible for majority companies that are working in the

different levels of resources and focused on the income and other resources that

able to perform well in business (Gray, 1995).

Conclusion

On the basis of above discussion it is concluded that Dell is performing efficiently but

due to some new projects profitability of company reduces. Core competencies

enhanced by enhancing the performance of finance in market and being able to

perform well in business. Different strategies opt by Dell Inc by utilizing internal and

external sources and budget also an important tool of managing business

performance properly.

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References

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373

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Financial Performance Management

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