BBPW3103 Financial Management 1 Assignment Sample Malaysia
Financial management is a critical skill for any business. This sample includes an example of an assignment that will prepare you for the course, BBPW3103 Financial Management 1. The examples are designed to help you understand how financial information can be used to make decisions in your day-to-day life and career. In order to help you get the best results from the assignment. But please remember that your professor may have different requirements for this assignment, so be sure to check with them before turning it in.
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Topics Of BBPW3103 Financial Management 1 Course
Following topics to be covered in this BBPW3103 Financial Management 1 Course. These are:
Topic 1: Introduction Subtopics:
- Roles of a Financial Manager
- Objectives of Financial Management
- Agency Problems
Topic 2: Analysis of Financial Statements Subtopics:
- Annual Report and Users of Financial Statements
- Financial Ratio Analysis
- Conducting a Complete Ratio Analysis
- Weaknesses of Financial Ratios
Topic 3: Time Value of Money Subtopics:
- Concept of Compounding and Future Value
- Concept of Discounting and Present Value
- Future and Present Values of a Series Cash Flows
- Compounding and Discounting More than Once a Year
BBPW3103 Financial Management 1 Assignment Activity
By the end of this project, you will be able to:
We also provide the following types of assignments. These are:
- Journal Writing
- Individual Assignment
- Group assignment
- Assignment Acknowledgment
- Case Study
- Cover sheet
- Reflective writing
- Tutorial solution
Assignment Activity 1: Identify the area of finance and its importance to businesses
Finance is a field that manages financial resources for individuals, businesses, and other organizations.
It is especially important to smaller companies due to their lack of access to large amounts of capital. It’s also important because the rates of interest for loans are typically higher than they are on investments, so if finances aren’t handled well then more money is lost. These days the finance department is expected not only to work with money but data as well. They manage sales information so they can forecast future needs and better manage inventory levels. Finally, by coordinating these systems it allows the company more control over meeting goals or deadlines which typically require finances to be monitored closely in order to come out ahead in all phases of business operations.
Assignment Activity 2: Explain the 4 main roles of financial managers in a company
The roles of a Financial Manager are fourfold.
The first is Budget Planning. Having the Forecasting, Revenue Recognition, and Decision-Support role of financial management all contribute to this task. Ensuring that adequate funding is available for the future while enabling profitability is at the core of this role.
Secondly, they handle Disclosures in compliance with legal requirements for financial reporting related issues like taxes and capitalization changes which require Compliance with governmental regulations to ensure continuing stability of the company both in fiscal sense and in terms of market value.
Thirdly, they must be Quantitative Analysts when it comes to making speedy decisions or optimizing resources allocation which means Understanding the impact on performance by analyzing different contingencies drawn from historical data or anticipated changes in economic conditions.
The last role is that of a jack-of-all-trades being the liaison between business and finance or operations and finance having to take whatever action necessary in order to ensure that company’s financial well being.
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Assignment Activity 3: Discuss the main objective of financial management
The main objective of financial management is to use financial and economic principles and practices to promote the accomplishment of objectives such as:
- Realizing current and future wealth or capital
- Obtaining liquidity
- Balancing risk, reward, and time frame
- Avoiding taxation.
From this list, we can see that the primary objective is realizing current and future wealth or capital. Other potential objectives such as avoiding taxes might be incorporated into achieving this goal. A professional accountant would most likely only consider the first two items in this list when planning for their client’s finances. They may be able to help a client acquire liquidity through loans etc., but it would not be their top priority (the client could get a loan from someone else if they really wanted it).
Assignment Activity 4: Examine the relationship in agency problem
Agency problems are frequently observed in markets for loans where the lender would rather retain its capital than lend it to the borrower. The term “agency problem” was coined by Nobel Prize winner George Akerlof, who published an important paper on this topic in 1980 with the help of also-Nobel Prize-winner Joseph E. Stiglitz. Just like other types of uncertainty, these problems can be handled by adding insurance or diversification while preserving incentives (see information asymmetry). The social good aspect is that agency costs provide a material incentive for agents to act in an inefficient way; if they could perfectly monitor their own actions and benefits, lenders/insurers would fully internalize externalities producing perfect efficiency. These costs are often introduced when individuals are used to representing groups in decisions. They can be considered moral hazards because they encourage agents to act opportunistically.
Assignment Activity 5: Explain the importance of financial statements to different groups of users
Financial statements are very important to the typical business owner because they, in most cases, will act as your primary metric for performance. Additionally, financial statements are also an expected form of accountability by government regulators and investors alike. These groups may have different expectations about what is included in the statement but they all require some level of disclosure about their company’s numbers.
These numbers can help you lay out a plan for future growth or anticipate potential challenges on the horizon so being able to read through these documents can be invaluable for somebody trying to manage their own business above and beyond providing documentation to paying parties at large companies.
Assignment Activity 6: Calculate the ratios for liquidity, asset management, leverage, profitability and market value
The principles of financial management include the following ratios:
This ratio is a liquidity measure, it tests how easily a company can increase its cash holdings to meet its short-term future bills given a current level of assets. In other words, the current ratio measures how easily a business can pay back these liabilities with its own liquid assets.
The current ratio is calculated as follows:
Liquidity: balance in liquid assets/balance in illiquid assets
Asset Management Ratio
This ratio tests the ability of a company to use its assets to generate sales revenues and cash flow. The asset management ratio typically has a value that is less than one, indicating that the business’s assets are not fully used to produce sales and earnings. These ratios might indicate an opportunity for greater cash flow by either increasing revenue or reducing assets. If another company was considering purchasing your company it would be interested in this information because it could potentially increase their own revenue if they make better use of your Company’s assets by adding them to their own (see DuPont Analysis). However, if these numbers turn out to be too far away from competitors’ numbers then they may not even bother pursuing the deal.
The assets to sales ratio are calculated as follows:
Asset Management: balance in liquid equity-related holdings (trading portfolio)/liquid liabilities (unencumbered securities)
The leverage ratio tests a business’s degree of financial risk by measuring how much it devotes to long-term debt for its total capital structure. If the company uses more debt, this results in higher levels of interest payments and may also result in higher returns on equity if successful. However, this also increases the riskiness of the company because there is a chance that they could lose money due to bankruptcy should their revenue fall below what they owe at some point. This ratio measures that likelihood and thus it has a value that is less than one for most companies since most businesses tend to use a relatively high level of equity.
The leverage ratio is calculated as follows:
Leverage: (liquidity)+(asset management)*(accounting leverage ratio for balance sheet items that raise when shown as liabilities which can be excluded up to 5% of the denominator, such as accounts receivable and inventories)
This ratio is a profitability measure, it tests how effectively a company can use its assets and capital to generate sales revenues. It’s a measure of the net income as a percentage of total sales. This ratio typically has a value that is greater than one because companies always have expenses, even if those expenses are not directly tied to production or the sale of products. In other words, this shows how much profit you actually made off your business as opposed to simply collecting revenue for selling goods and services.
The profitability ratio is calculated as follows:
Profitability: (net income)/(sales – cost of good sold)
Market Value Ratio
Finally, the market value ratio measures what kind of return an investor would receive by purchasing the company’s common stock. In other words, it assesses how much of a return an investor would receive if they purchase 100 shares of common stock for $100 each.
The market value ratio is calculated as follows:
Market Value: (common equity – preferred equity)/(market price per share * number of common shares outstanding)
Assignment Activity 7: Evaluate a company’s performance based on financial ratios and the DuPont analysis
Financial ratios and the DuPont analysis provide a way to evaluate a company’s performance. This includes studying such things as its balance sheet, income statement, and capital structure. Financial ratios give an indication of the financial health of a business while the DuPont analysis can give an idea about how well that company is using its assets and capital to make sales and thus produce profits.
The DuPont Analysis is a strategy to evaluate a company’s performance, primarily through financial ratios that provide a snapshot of the overall efficiency and effectiveness of the company.
The DuPont analysis is used for two main purposes, both to flexibly analyze different aspects of a company’s business and financial strengths, and to track changes over time.
The DuPont analysis recognizes three key components in evaluating every business: “sales,” which includes all revenue generated by selling products or services; “earnings,” which includes all income before interest and taxes; and finally, “assets” which is representing money invested in less-liquid assets such as buildings or equipment. Taken together these data will give you insight into how productive your business uses its resources to generate sales.
Assignment Activity 8: Explain the weaknesses of financial ratio analysis
Analysis of financial ratios can be really effective and insightful on a company level, but it does not necessarily work for the same level of accuracy on the sector level.
Financial statements are hard to analyze because they rely on very subjective data like revenue and earnings as opposed to like outflows and assets. On a macro-scale (sector-wide), there may be forces such as industry growth or changes in tax rates affecting profitability that cannot show up easily in ratio analysis. Results from financial statement analysis may also have different conclusions depending on the time frame under which they occur, so a 3-year measurement might show a significant change whereas a 1-month timeframe might not even register the difference. Financial statement analysts will often realize this through changes in past performance levels.
Assignment Activity 9: Apply the concept of compounding and discounting in determining future value and the present value of money
Compounding is the reinvestment of earnings. The original sum invested grows by earning interest on previous gains, so future investments are calculated at an increasing cumulative rate.
Compounding results in exponential growth or decline in values given enough time for compounding to take place where the accumulation of interest becomes significant to the total value of the initial investment.
Discounting is the reduction in present worth that results from transferring value into the future. Values are best thought of as cash flows occurring at intervals into infinite combinations; discounting calculates each value relative to its time unit (e.g., year, quarter, month), and then reduces it by a discount factor (or market interest rate). Note that for simplification purposes this analysis will use annualized data only; other periods may need slightly different calculations.
Assignment Activity 10: Differentiate between an ordinary annuity and annuity due
Annuity due is a financial instrument used to repay a debt. It typically works by paying the outstanding principal and interest in regular installments until it is fully repaid. This differs from an ordinary annuity, where payments are made periodically over time and an investor’s funding is returned at the end of each payment period.
An annuity due provides for installment payments that will pay out total invested capital before the final payment to either the borrower or contract holder when it becomes due (i.e., its maturity). These installments consist of both the original loan amount and all accrued interest to date, with periodic installments paid out over a predetermined number of periods (most often 10 years). The borrower pays back less than they borrowed in an annuity due, and must also front any interest accrued while the annuity was inactive (i.e., for no payments made).
Assignment Activity 11: Calculate the future and the present value of money for non-annual compounding periods
With non-annual compounding, the future value is calculated by multiplying the amount of money in question by (1+r), where r=interest rate. The present value is calculated by dividing the future value by ((1+r)^-n).
Future Value = M * (1 +r)
Present Value = FV / ((1+(1+r))^(-n))
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