Management Topics Samples
OBJECTIVES
As a person with sufficient knowledge in accounting and finance, the author has always brought up to his superiors the viability of strategy formation regarding the use of accounting and financial statements in making informed business decisions and at times fail to understand the reasons or logic behind certain strategic implementations imposed on.
By delving into this project paper, the author intends to impart insights as to how the use of accounting and financial statements help in making informed business decisions. The author hopes to have an in-depth understanding regarding basic accounting theories, assumptions, and principles as well as analyze the relationship between the balance sheet and the income statement.
In order to reinforce the learning objectives, two key focal issues were focused upon, i.e. innovation and diversity. Innovation was discussed with regard to accounting and finance where both are renowned for their developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the use of accounting and financial statements must consider the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to make informed business decisions.
REVIEW OF RELATED LITERATURE
A. Accounting & Finance
Accounting can be defined as the process of recording, classification, analysis and interpretation of financial information which in turn is reported to the concerned stakeholders through the financial statements (Ashton, 1974). It requires a record for each and every transaction the business enters into. Accounting has five (5) basic categories. The categories are (1) Assets; (2) Liabilities; (3) Equity; (4) Revenue; and (5) Expense.
Finance, on the other hand, is the study of the methods and means in which individuals and organizations allocate and use their financial resources over time, while at the same time taking into consideration the risks involved in their projects (Dyckman et al. 1978). It consists of three (3) interrelated areas, (1) money and capital markets which pertain to topics regarding macro economics; (2) investments, which pertains to the decisions made by individuals and financial institutions as they select the appropriate securities for their investments portfolios; and (3) managerial finance which pertains to the actual management of the business organization. In general the three areas are interrelated.
B. Balance Sheet & Income Statement
Income Statement pertains to the output of the Accounting System. It informs the various stakeholders involved of the following critical information: (1) Where the business stands in a specified period of time; (2) How the business performed for a specific period of time; (3) How the management's stakes in the business changed for a specified period of time; and (4) Where and how the business organization's financial resources was used in the operation and management of the business for a specified period of time. Balance sheet, on the other hand, pertains to a financial statement indicating the financial position of a business entity at a certain point in time. Users of balance sheets interpret financial position as the status of the business entity financially in a given point in time (Gibbins, 1984).
The primary objectives of both the balance sheet and income statement are to provide information that is reliable and can help in making investment and credit decisions; in making evaluations regarding the amount and uncertainty of future cash flows; and in learning about the business entity's economic resources and changes regarding claims to resources. Some of the most significant characteristics of both the balance sheet and income statement include being a means to an end, being historical in nature, and being based on a general-purpose assumption. The balance sheet and income statement are both useful to the business entity with regards to achieving its objectives and corporate mission; evaluation of past performance and future plans; and assessment and rewarding decision-making performance.
C. Using Accounting and Financial Statements
Accounting is the method by which information regarding a business organization is communicated. This is the reason why it is more often referred to as the language of business. Many different stakeholders have the need for accounting information in order to make informed business decisions. These stakeholders include investors, creditors, governmental agencies and others. Because the main objective of accounting and financial information is the provision of reliable data and information for decision-making purposes, it is more commonly referred to as a means to an end, with the end pertaining to the decision that is supported by the presence of accurate and reliable accounting data and information.
COMPANY OVERVIEW 1
A. Palm, Incorporated
Palm, Inc. aims for sustainable growth as a broad market leader in mobile computing as well as for segment leadership. In both cases, the Palm, Inc. brands will play a crucial part. Palm, Inc. is able to establish its broad leadership usually by acquiring other strong mobile computing companies and their products, which are then combined into a new, larger company. Offering training to its employees, improving the company operations, and the introduction of new technologies then reinforces the positions of the various Palm products. This practically results in economies of scale that is able to create a distribution network for both the local and international Palm products. If a market is already in the control of other mobile computing companies, Palm, Inc. devotes its attention towards the development of a premium segment with its various Palm products.
The mission of Palm, Inc. is to secure the growth of the business in a sustainable manner, while at the same time constantly improving the company's profitability. The strategy to achieve this involves four elements:
1. Striving in order to reach a leading position in attractive markets
2. Focusing on securing a competitive share of the mobile computing market segments.
3. Working in order to improve the company's efficiency and cut costs in operations.
4. Continuous growth through selective acquisitions for as long as they are able to create shareholder value.
B. Financial Statements
To be useful and helpful to the various stakeholders involved, accounting and financial statements of Palm, Inc. are:
* Relevant: relevant accounting and financial statements of Palm, Inc. make a significant impact and difference in its decision-making. It also helps the various stakeholders of Palm, Inc. involved to make predictions regarding the past, present and future events. Relevant accounting and financial information also helps the stakeholders confirm prior expectations. It is also must be ready before decisions are made.
* Reliable: reliable accounting and financial statements of Palm, Inc. have been proven and verified, neutral, and presents only truthful information.
C. Accounting principles in consideration
* The historical cost principle makes it imperative for Palm, Inc. to perform their accounting and reporting measures based on the acquisition costs rather than fair market value for the majority of assets and liabilities. This principle guides Palm, Inc to relate data and financial statements that are accurate, thereby removing the opportunity of providing biased market values, but not very relevant. Therefore, there involves a trend of utilizing prudent values. Most debts are now being reported at their actual market values.
* The revenue recognition principle makes it imperative for Palm, Inc. to perform recording only when revenue can be (1) realized or realizable and (2) earned, not when cash is received. This method of accounting is commonly termed as accrual basis accounting.
D. Assumptions in consideration
* Economic Entity Assumption pertains to Palm, Inc.'s assumption that its business per se must be separated from its owners or other businesses. Revenues and expenses must have a distinction from personal expenses. This is applicable even for partnerships and sole proprietorships. The entity concept does not automatically pertain to a legal entity.
* Going Concern Assumption pertains to Palm, Inc.'s assumption that its business will remain strong and functional for a long period of time. This validates the terms asset capitalization and amortization. Only when liquidation is sure to happen will this assumption become null.
E. Resulting competitive advantage
Among the competitive advantages enjoyed by Palm, Inc. because of their efficient accounting system are:
· Economies of Scale and Scope in manufacturing and research and development arising from its numerous facilities situated in the United States and other countries worldwide.
· Unique Quality Technology owing to heavy emphasis on research
Palm, Inc.'s commitment to research & development activities has always been one of its top strategies to remain competitive in the market.
· Differentiated Products
Through the production and marketing of differentiated products originating from their research and development activities, Palm, Inc. is able to create its own firm-specific advantages. The continuous pursuit of research and development processes enables Palm, Inc. to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, Palm, Inc. is able to market their products worldwide, which enables them in turn to maximize the returns on research and development expenditures.
COMPANY OVERVIEW 2
A. Heineken
Heineken is one of the world's leading brewing companies in terms of profit and sales volume. The company has also the widest presence among all international brewing companies. This is made possible through a positioning strategy of global networking of breweries and distributors.
In terms of volume, Heineken is the largest beverage and brewer distributor in Europe. The company also balances stable and profitable markets in Europe and North America. In recent years, Heineken has initiated efforts to solidify its presence in the Asia Pacific Region through the acquisitions of beer markets in China and Russia.
The Heineken brand is one of the world's most valuable international premium beer brand. Heineken uses the name of both the company and its mainstream beer label, and this strategy has allowed the company to pursue an integrated marketing approach directly related to the company name.
Heineken, as a leader in their industry, has implemented various strategies to fully adapt to the need to go global. However, it is more important for Heineken to implement a more sober approach to maintain consumer loyalty with their local brands. This is primarily due to the consolidation and globalization that are taking place across most industries, including the brewing industry.
B. Financial Statements
To be useful and helpful to the various stakeholders involved, accounting and financial statements of Heineken are:
* Comparable: accounting and financial statements of Heineken are comparable. This is done by reporting the results in the same manner for different business organizations.
* Consistent: consistent accounting methods of Heineken can be applied from period to period, and all alterations done in the methods must be justified.
C. Accounting principles in consideration
* The matching principle means that expenses within Heineken need to be matched with revenues for as long as it is reasonable to do so. Expenses within Heineken cannot be recognized whenever the task is done, or whenever a product or service is produced, but only when the task or the product has been proven to steadily contribute to the revenue. If there is no connection that can be made with revenue, then that's the time that costs can be charged as expenses to the present period. Therefore, this principle allows greater assessment of actual financial gains and performance of Heineken (Libby, 1978).
* The full disclosure principle means that the amount and types of financial data and information within Heineken that will be revealed must be decided on the basis of trade-off analysis. This is because bigger amounts of information cost a lot more for the preparations and utilization. Financial data and information within Heineken that will be revealed should be enough to make prudent decisions while keeping costs justifiable. Accurate information must be presented either in the main body of financial statements or as supplementary information.
D. Assumptions in consideration
* Monetary Unit Assumption pertains to Heineken's assumption that a stabilized currency is going to be the unit of record. The FASB recognizes the nominal value of the US Dollar as the standard monetary unit of record.
* Periodicity Assumption pertains to Heineken's assumption that its business operations can be monitored and separated into months, quarters and years. This is a must to enable comparison between present and past performance (Goennedes et al. 1974).
CONCLUSION
The results of the analysis carried out on the managerial accounting and financial reporting of Palm, Inc. and Heineken indicated very significant effects, even amidst the threats of unrest. Therefore, we could conclude that the managerial accounting and financial reporting of Palm, Inc. and Heineken could still be expected to improve faster than average.
The review of Palm, Inc. and Heineken's the managerial accounting and financial reporting capabilities and resources revealed very little inconsistencies regarding their strategies. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now for both companies.
The analysis among the environment as well as the managerial accounting and financial reporting capabilities of Palm, Inc. and Heineken revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the competitiveness of both companies.
Also, both Palm, Inc. and Heineken have to find a balance between adherence to internal forces within the management and to the changing forces of the environment in order to implement such strategic options.
APPENDICES
Measuring Palm, Inc.'s Performance
a. Financial Analysis
In the fiscal year of 2003, Palm, Inc. was able to experience a significant progress in several key metrics. The inventory was reduced from $55 million to $23 million and inventory turns rose from 12 to 26. The cost of revenues, excluding the benefit from previous special charges and the applicable portion of the amortization of intangible assets, decreased from 72.3% of revenues to 67.8% of revenues. The combination of sales and marketing, research and development, and general and administrative expenses was reduced from $ 435 million to $339 million, while at the same time improving on the pace of innovation. Palm, Inc.'s total revenue has approximately grown from $1 million in fiscal year 1995 to $ 871. 9 million in fiscal year 2003.
b. Marketing
The retailers in the United States represent Palm, Inc.'s largest sales and marketing channel which encompass national and regional office supply stores and mass merchants. Distributors represent Palm, Inc.'s second largest United States channel and generally sell to both traditional and Internet resellers and retailers. In Europe and Asia, Palm, Inc.'s market share is still relatively high. Palm, Inc. has more than 100 international distributors located worldwide.
The company uses the Palm.com store as a venue to sell its products. This is accomplished through the use of e-marketing campaigns and product bundles. The company is able to build awareness of its products and brands through mass media advertising, public relations efforts and branded Internet properties. The company also makes it a point to receive feedback from its customers through market research. The company then uses these feedbacks to refine its product development efforts and marketing strategies.
c. Operations
Palm, Inc. out-sources all of its manufacturing and hardware designs of its products to third party manufacturers. This outsourcing extends from prototyping to volume manufacturing and includes activities such as material procurement, quality control and delivery to distribution centers. The company is assured that there is an adequate supply of components to manufacture its products. The majority of the company's products are assembled in China and Mexico. Distribution centers are operated on an outsourced basis in Tennessee, Ireland, and Hong Kong.
d. Human Resources
Palm, Inc. knows that its future depends on the company's ability to attract new personnel and retain existing personnel in key areas including engineering and sales. None of the company's employees is subject to a collective bargaining agreement. The company considers its relationship to its employees to be good. As of June 30, 2003, Palm, Inc. has a total of 982 employees operating within a company organization structure. Ed Colligan is the current President and CEO of Palm, Inc., while Jeff Hawkins is the current Chief Technology Officer.
Palm, Inc. Key Ratios
Key Ratios
Valuation Ratios
P/E
23.23
Price to Cash Flow Ratio
17.05
Price To Sales (TTM)
1.25
Price To Book
2.55
Per Share Ratios
Book Value Per Share
0.00
EPS Fully Diluted
1.29
Revenue Per Share
24.77
Profit Margins
Operating Margin
6.32
Net Profit Margin
5.23
Gross Profit Margin
30.00
Growth (%)
5 Year Annual Growth
7.66
Revenue - 5 Year Growth
3.73
EPS - 5 Year Growth
0.00
Financial Strength
Quick Ratio
1.58
Current Ratio
1.72
LT Debt to Equity
6.02
Total Debt to Equity
6.02
Return on Equity (ROE) Per Share
0.00
Return on Assets (ROA)
8.81
Return on Invested Capital (ROIC)
0.00
Assets
Asset Turnover
1.39
Inventory Turnover
34.85
Heineken bases its pricing strategies on several key trends that continuously shape the global marketplace of brewing. One particular trend is labeled as "premium-tization". This phenomenon causes the polarization of different markets. This would then trigger the consumers to demand and pay much higher prices for perceived quality. However, discounting in prices is also simultaneously taking place, therefore squeezing out the middle range. More often than not, supermarkets undergo internationalization which leads to a tighter squeeze for shelf space. This will in turn leave Heineken as a winner. It is for this reason why Heineken values the "premise sector" so much because this would allow consumers can to try their brands at low risk and price.
In terms of market segments, premium lagers and specialty brands of Heineken with higher alcohol content have a disproportionate share of volume growth at an estimated 4-5% per year, as against the 2-3% overall growth rate. These rates come up as a result of both the rise in GDP among developing markets and consumer demands for higher value propositions, which is obviously dominated by international brands. Therefore, Heineken has to increase its portfolio and operate globally to overcome the home market. Heineken practically operates on a relatively fragmented market, with the top four brewing companies accounting for 22% of global beer volume five years ago and only about 28% today.
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