ACCA笔记 SBL笔记11 Financial Decision Making

ACCA笔记| SBL笔记11 | Financial Decision Making
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今日笔记是关于 Financial Decision Making 的内容~
1. Financial objectives of stakeholders
- Financial strategy often focuses on shareholders wealth. But there are financial expectations from other stakeholders which must also be considered.
- When setting strategy for the organisation, the financial expectations of other stakeholders need also be considered.
2. Funding strategy
- Funding for Non-for-profit organisations Most non-for-profit organisations need their core costs to be covered.
- Funding SBUs and strategic choices using BCG matrix
- Alternative sources of finance
equity, debt, others (eg. government grants)
3. Financial analysis and decision-making techniques
- Break even analysis 1) To ascertain how much each $ sold actually contributes towards the fixed costs.
C/S ratio = Contribution per unit / selling price per units
= total contribution / total sales revenue
2) To make zero profit, sales volume should be at
Breakeven = FC/(sales price – unit variable cost)
= FC/ CPU
3) The margin of safety indicates by how much sales can decrease before a loss occurs Margin of safety= budgeted sales –BEP A large margin of safety indicates a low risk of making loss, whereas a small margin of safety might indicate a fairly high risk of loss.
- Marginal analysis
Marginal analysis refers to situations where we use contribution to make decisions.
The key is that only cost which vary with the decision should be included in the analysis of decision.
Relevant costs are future cash flows arising as a direct consequence of the decision under consideration.
Marginal analysis can be used in key areas of decision making such as:
1) Make or buy decisions
2) Shut-down decisions
3) Further processing decisions
- Long-term decision making
1) Accounting rate of return (ARR) Average profits / initial investment
2) Payback period Determine how quickly the original cash injection is recovered
3) Net present value (NPV) Use a cost of capital and discount factors to discount future cash flows to give the present value
4) Internal rate of return (IRR) Determine the cost of capital that provides a zero NPV
4. Cost and management accounting
- Standard costing assumes that business operate in a stable environment where, for example, a standard amount of materials will be used in the production of each product and that a standard price can be attached to the price of those
- Forecast 1) Linear regression Linear regression measures the relationship between two variables
The strength of the relationship is measured by correlation coefficient - 'r', which can range from +1 (perfect positive linear correlation) through 0 (no correlation) to -1 (perfect negative linear correlation).
2) Time series analysis Time series analysis aims to separate seasonal and cyclical fluctuations from long-term underlying trends.
- Budget 1) Benefits of budgets Promotes forward thinking Helps to co-ordinate the various aspects of the organisation Motivates performance Provides a basis for a system of control Provides a system of authorisation
2) Limitations of budgets Employees may be demotivated if they believe the budget to be unattainable. Slack may be built in by managers to make the budget more achievable.
Focuses on the short-term results rather than the underlying
Unrealistic budgets may cause managers to make decisions that are detrimental to the company.
3) Alternative budgeting models Top-down (Imposed budgeting) VS Bottom-up (Participative budgeting)
Fixed budget VS Flexible budget Periodic budgets VS Rolling (Continuous) Budgets Incremental VS Zero based budgets。