Finance Management Report

8/8/2019 Finance Management Report

http://slidepdf.com/reader/full/finance-management-report 1/18

Royal Melbourne Institute of

Technology, Vietnam

ACTT2106 Business Simulation

Lecturer: Ms. Jis Kuruvilla

FINANCE MANAGEMENT REPORT

IDENTIFICATION

COURSE: ACTT2106

GROUP: 8

LECTURER: Jis Kuruvilla

FIRST NAME: Tan

LAST NAME: Vo Thanh

STUDENT NO: s3222072



Executive Summary

Silver Star company is a newly established company in the jewelry industry. It is

established at the beginning of 2008. After having operated 3 years in the market, even

though all of the managers had tried their best to contribute to the success of the

company, unfortunately the Silver Star ranked the last positioned of the industry.

From Q1 to Q3, Silver Star company stood at the first position. In this time, all of

the departments have manage the company very well and cooperate strongly with each

other. However, in Q4, our company were so unlucky when we lost 25% of the ordered

raw material and began to fall down. From Q4 to Q8, due to some problems with the

pricing, marketing strategies and the product quality, the performance of our company getworse and we lost the first position and our position were declining each quarter. In Q9,

when our company began to adjust the strategies and were willing to take high risks, we

suffered our biggest business failure and were bankrupted due to some unpredictable

changes of the industry. Our company could not recover any more and from Q10 – Q12,

our company began to drop down and suffered more failure and finally, Silver Star

company ended the Team Game with the last position.

This Management Report has analysed all of the decision in term of Finance

department and its effect on the General Results of the company to find out the reasons

for the collapse of Silver Star company. I, as the finance manager and the CEO of the

company, also did an management reflection to examine how thing works with our team.

After doing these sections, I realized all of my serious mistakes and gained so many

valuable lessons and experiences. Therefore, I have constructed an future plan for short-

term and long-term plan to improve the performance of our company and get back to the

first position.

I strongly believe that my future plan could enable our company to regain what

we has lost and achieve more success in the future.

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Table of Content

I/ Overview of decisions made in Team Simulation..............................................04

1. Objectives.........................................................................................................04

2. Achievement....................................................................................................04

3. Short-term loan request..................................................................................04

4. Mortgage..........................................................................................................06

II/ General company results...................................................................................08

1. Net income.......................................................................................................08

2. ROA..................................................................................................................10

3. Break even point..............................................................................................11

4. Conclusion........................................................................................................12

III/ Management Reflection...................................................................................13

IV/ Future plans.......................................................................................................15

1. Short-term plan...............................................................................................15

2. Long-term plan................................................................................................16

V/ Conclusion............................................................................................................17

VI/ References..........................................................................................................17

VII/ Appendix...........................................................................................................18

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I. Overview of decisions made in the Team Simulation:

1. Objectives:

a/To reduce gradually the interest expense and omit them since quarter 10.

b/To increase the net income as much as possible to achieve $115000 at the

end of the third year.

2. Achievement:

Unfortunately, due to some mistakes of our strategies and the unpredictable

changes of the industry( I will discuss in details in the upcoming sections), we

could not achieve any objectives.

With objective (a), we could not eliminate interest expense since Q10 whereas

we also suffered a massive amount of emergency loan

With objective (b), we could not achieve as well because our net income at the

end of the third year became negative.

3. Short-term loan request:

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Overall, the finance departments has made the right decisions in the first three

quarters. It matches with the financial goads of reducing the interest expense gradually

each quarters. Moreover, it also stands below the industry average which is an economic

advantages for our company for the next quarters whereas we ranked number 1 from Q1

to Q3. The reason for this early achievement is the close cooperation between the three

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departments when I, the finance manager has set up adequate budgets for the marketing

and production and they used it effectively and efficiently. The marketing managers has

done a very good job when our forecasts were very accurate, the promotion campaign

was so successful and the price was very reasonable in the first three quarters. It enables

me to decide an reasonable short-term loan request.

Unfortunately, we lost 25% of the raw material in Q4 which made our company

leave the first position and lose the momentum since this quarter. The market also

changed and became more difficult to foresee. As a result, the forecasts were no longer

accurate, the promotion was ineffective and we did not have enough raw material to

produce which made my decisions- the short-term loan - fluctuate from Q4 to Q8.

Consequently, our company suffered the emergency loan in Q6 and Q7. These were the

burden for our company in the next quarters due to my bad decisions

In quarter 9, we began to realize that our strategies, the low-cost leadership was

not suitable in this industry and we needed to adapt with the changes of the industry in

order to survive and compete. Therefore, we started to adjust our strategies by investing

heavily on advertising in terms of all three channels and raising the product quality

significantly. Thus, we had to take so much risks and I decided to maximize the amount

of short-term loan request. Unfortunately, due to some changes in the industry (which

will be discussed in details in the next sections), we went bankrupted this quarter and

suffered emergency loan although having borrowed the maximum. In the final three

quarters, we had no choice but to take more risks and maximize the short-term loan

request so as to regain what we had lost. Consequently, we lost again and suffered

emergency loan again. Besides, our warehouse cost climbed sharply as well which made

our cash inflows decrease considerably. Now I understand that my decisions from Q9 to

Q12 were so bad which made our company rank the last.

As compared to the Business plan, I just followed the Plan in the first three

quarters which is an crucial factors enables our company to rank the first position.

However, because of the shortage of raw materials in Q4, the changes of the industry and

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my mistakes which I has stated above and I will discuss more in the next parts, I had to

change the decisions but it did not work effectively.

4. Mortgage:

In the business plan, I just intended to borrow 100000 of mortgage but in the

Team Game, there is a big difference. After dealing with the lack of raw material in Q4, I

made a decision to borrow 150000 in Q5 to buy more plan capacity to increase theamount of products so as to earn more profit and return to the top three. This could be a

good decision if our company could handle efficiently with the added plan capacity.

Unfortunately, due to some mistakes in the forecasts, the administrative expense and

setting the product quality too low, we could not obtain so much profit from Q5 to Q8.

Since quarter 9, due to unsuccessful strategies, our company collapsed and each quarter

we suffered a huge amount of emergency loan, above 1000000, so our company’s

financial situation is so unstable and vulnerable and we were not allowed to borrow

mortgage anymore.

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II. General Company Results:

1. Net income:

It can be seen from the chart that from Q1 to Q3, the net income of our

company was higher than the industry average. As I mentioned above, the finance

department has made very good decisions about short-term loan at that time. After

establishing reasonable short-term loan requests, I had discussions with two other

departments to allocate it to them suitably. With that budget, the marketing departments

invested efficiently on advertising expense and set the price acceptably while the

production departments spent it effectively on product quality and HRD. As a result,

Silver Star company has attained an significant achievement in the first three quarters by

using the short-term loan – my decision – successfully. Therefore, I can conclude that my

decision from Q1 to Q3 has made a positive effect on the overall results of our company.

However, in quarter 4, we encountered an huge obstacle when we lost 25% of

the ordered raw material. Therefore, our net income went down dramatically. This is the

start point of our collapse because the industry began to changes unpredictably. As a

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result, our forecasts were totally inaccurate and our product quality was not consistent

with the price. Therefore, this lead to my bad decisions of short-term loan from Q4 to Q8.

Consequently, our income increased slowly while the warehouse cost increase steadily

from Q4 to Q8. Thus, my bad decisions has negatively influence on the overall company

results because we suffered emergency loan in Q6 and Q7. In addition, I also borrow

150000 of mortgage in Q5 to purchase more plant capacity. However, our company did

not work effectively with this additional capacity. Thus, this decisions also did not make

a good impact on the performance of the company.

Meanwhile, in quarter 9, we decided to change our strategies by spending

more on advertising and improving the product quality. We were willing to take high

risks to earn more profit. Unfortunately, in this quarter, one of our competitors began to

raise their product quality rapidly, investing a massive amount of cash on advertising

whereas charging a quite low price to expand their market share. Thus, our products

could not compete with them because both their product quality and advertising expense

was much higher than us and our sales went down considerably. Therefore, we lost more

than 500000 of our income, this was more than the total income that we have earned

before. This was our biggest failure in the whole team game.

Since Q10 to Q12, we are left with no choice. We had to take more risks by

investing more on adverting and product quality and charging a relatively low price.

However, we were unsuccessful again when our products could not compete with other

competitors and we suffered more huge amount of negative income. Moreover, the

warehouse costs also went up dramatically which increase the cash payments. Thus, our

company went bankrupted.

From Q9 to Q12, when we took risks, I had no choice but to maximize the

short-term loan request. Unfortunately, due to the strategies of our competitors, we still

faced emergency loan and I were unable to do anything to prevent this problem because

the short-term loan is limited and our company was in a very vulnerable situation.

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In addition, another big mistakes of our company is not to buy the Market

Research. Therefore, we are lack of information about the strategies of our rival and was

unable to adapt and cope with the changes our competitors’ strategies.

2. ROA:

This graph clearly illustrate the trends I have mentioned above: our company

had a really good performance in the first three quarters before falling down gradually

from Q4 to Q8 and finally, went bankrupted in the last four quarters. This trend can be

explained because our ROA was really high compared to the industry average from Q1 to

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Q3 and from Q4 to Q5, it is a little lower compared to the industry and from Q9 to Q12, it

is really very low.

In the last four quarters, our ROA was very low which means that we did not

use our assets effectively to generate sales. The reasons are we did not have any cash on

hands at this time and we did not have so many account receivable to collect. Therefore,

our assets is very low compared to the net sales. Moreover, my decisions to maximize the

short-term loans could not help us to cover all the costs and the huge amount of

emergency loan made our company run out of cash on hand.

3. Break Even Point:

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02000400060008000

10000120001400016000

1800020000

1 2 3 4 5 6 7 8 9 10 11 12

Sales

Break even point

Quarter

Bracelet:Actual Sales vs BEP

As I mentioned above, our strategy was Low-cost leadership. In addition, we also

focused on product 1 and a considerable portion of our profit has been contributed from

sales of product 1 (necklace) With product 1, it can be seen from the graph that we

obtained BEP in the first eight quarters. However, the vertical distance between the sales

and BEP was not so large which means that we did not earn so much profit. Thus, it just

enabled us to rank the first position from Q1 to Q3 before falling down from Q4 to Q8. In

Q9, we began to raise the product quality considerably. Hence, the cost of production

became higher and the BEP also increased. However, due to the unpredictable strategiesof our rival when they dumped their product, our sales dropped rapidly and we could not

achieve BEP any more since then. Therefore, my decision of short-term loan request

could not assist our company when we received a huge amount of emergency loan.

With product 2 (bracelet), we did not focus too much. Therefore, we set the

product quality really low – the lowest in the industry. As a result, we easily achieved

BEP in the whole 3 years. However, the profit we got from product 2 was so little and it

could not save our company from being bankrupted. This is also a mistake of our

strategies because we did not pay attention too much to product 2 although is had a great

potential to enable our company to accomplish economic successes.

4. Conclusion:

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Overall, our company did not perform very well as compared to the other rivals

because we ranked the last. Therefore, we know that we did not do a very good jobs after

3 years but at least, we also had some achievements when we ranked the first from Q1 to

Q3. Our company did had a good performance at that time before beginning to collapse

due to some reasons I have discussed.. However, we believe that the investors should put

the investments on our company because after completing the Team Game Simulation,

we had learnt a lot of valuable lessons and practical experiences. Now we know that our

mistake was the inflexibily when dealing with the shortage of raw materials and unable to

adapt with the adjustment of our competitors’ strategies. In the future, we will apply the

Contingency theory ( Morgan, 1998) to adapt with any irregular changes of the industry.

We also prepared the short-term and long-term plans to recover our company and get

back to compete. We strongly believe that we could manage the company better and

assist the investors to get more profit in the future.

III. Management Reflection

In our company, I am not only responsible for the finance department but also

the CEO of Silver Star. As a team leader, I realize that I did not manage my team very

well. At first, we all agreed that we would have a meeting outside the classrooms before

the process of each quarter to discuss closely about our strategies. However, we could not

attend all of the meetings because all of us also studied another subjects and had a lot of

assignments and exercises to do. Thus, in some quarters, we did not have sufficient time

to think about the decisions. This is also one of the reasons which caused our business

failure. I am the leader of my team, so I understand this is my responsibility. McShane

and Travaglione (2007, p.416) claims that motivation is the ability of the leaders to gain

power in order to persuade their members to achieve the common objectives that. I

realize that I had failed to motivate and build impetus for my team members. I think at

that time I should encourage them to attend all of the meetings to have more discussions

about the strategies.

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In addition, our team also had few conflicts. For instance, that was the conflict

between the marketing and production departments. After doing a very good jobs from

Q1 to Q3, the conflict began to appear in our team. The marketing managers wanted to

increase price while the production managers would like to keep the product quality low

to apply the low-cost leadership. The problem was the price was not consistent with the

quality. Therefore, they had arguments and began to have conflicts. As a role of the team

leader, I applied the conflict management style named “withdrawing” of McShane and

Travaglione (2007, p.389) when I tent to be the outsiders and let them to handle it.

Consequently, they could not handle it and our decisions were not consistent. Thus, our

company began to fall down and go bankrupted.. At present, I recognize that I did not do

a good job in managing the conflict. I believe that at that time, instead of applying the

“withdrawing” style, I should apply the “compromising” style ( McShane & Travaglione

2007, p.393). I should get involved in the arguments and try to reach a deal that satisfies

and benefits all of them. For example, we could make a agreement to raise the price a

little and increase the product a little bit so that they were consistent with each other. It

would be better for our team.

Moreover, another problem with our team was one of my partners did not have

so much contribution in the final quarters. However, I ignored that problem and tried to

work with the remaining member to do the Team Game Simulation. McShane and

Travaglione (2007, p.114) indicates that a leader should use emotional intelligence to

deal with the problems in teamwork. However, at that time I did not do that. Therefore, I

currently understand my mistake. I should apply the theory of “emotional intelligence” to

examine the situation of my teammate to find out what were happened with him and try

to help him.

In short, I have applied the theory of “Task-oriented behaviours” (McShane &

Travaglione 2007) of leadership to manage my teams. I just focused on the teamwork and

tried to do the best works without considering the emotions of my team members. Now I

know that I applied the wrong theories. If I had a change to manage our team again, I will

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choose the “people-orientated behaviours” style (McShane & Travaglione 2007). I will

focus more on building the trust between us and understand the emotions of my team

members to adjust my behaviour so as to achieve the best results.

After completing the Team Game Simulation, I have gained some precious

experiences about managing a company. Now I realize that as a leader of a team, I should

be more passionate and decisive. Moreover, I also need to learn more about the

“emotional intelligence” to match with the changes of the team and build the trust and

respect between team members. I also learned more about how to manage conflict in a

team by using the “compromising style”.

IV. Future plans

1. Short-term plan:

a/ Objective for year 4:

Decrease gradually the emergency loan and try to omit it at the end of year 4.

Eliminate all of the negative amount of income ($-1470469) at the end of year

4.

Have a better position in the industry, at least leave the last position.

b/ Strategies for year 4:

Increase the unit produced each quarter to at least 30000 to obtain more

market share and raise total net sales so as to earn more profit and net income.

Invest more on HRD to increase the productivity, about 16000.

Invest cash on advertising appropriately. Because since year 4, our rivals will

not dump their products and invest heavily on advertisements, our company

should invest on advertising suitably, not too low from Q1 to Q8 and not too

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high from Q9 to Q12 to avoid the law of diminishing returns. We can invest

about 25 – 30 for TV, 30 – 35 for Newspaper and Magazine.

Improve the product quality, about 10 – 15 for product 1 and 8 - 10 for

product 2.

Increase the price to fix with the cost of production, about 68-75 for product

1 and 58-65 for product 2.

Increase cash on hand by reducing the time for collection of Account

Receivable (from 3 months to 2 months).

Increase the budget for production department (add $200000 each quarter

to their budget) to invest more on product quality and hire workers.

Be more careful with the forecast process in order to reduce the risk of

suffering emergency loan.

Find some sources of debtors (banks) with a low interest rate.

Cooperate with other companies (THQ, Adam VN) to buy Market

Research to easily adapt to the change of the industry.

Have more discussion with marketing and production departments to set

up a reasonable and sufficient budget for them each quarter, the maximum will

be about 200000 for Marketing and 400000 for production.

2. Long-term plan:

a/ Objectives:

Get back to top three and regain the first position to dominate the market in

2015.

Expand the market into foreign countries such as Euro, USA, Asia in 2020.

Do charity activities, sponsorships and produce the environmentally friendly

product in 2015.

Obtain 20% of the total market share or get the largest market share in the

industry in 2015.

Raise the income as much as possible to achieve the highest net income in the

long-term, must be more than $600000 in 2015.

Minimize the interest expense and try to omit it in 2015.

b/ Strategies:

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Apply the Contingency theory (Morgan 1998) to adapt quickly with the

changes of the competitors and the industry.

Adjust the pricing strategies, the product quality, the marketing campaigns to

match with the future circumstance of the market.

Find more sources of suppliers to get environmentally friendly raw material

with a cheaper price to reduce the cost of production and the pollution.

Build strong relationship with foreign partners to expand our market to all

over the world.

Find more opportunities to do the charity activities or sponsorships to

increase the influence of our company and raise the brand awareness and

goodwill.

V. Conclusion:

In summary, our company did not have a very good performance as compared to

other competitors when we ranked the last position. I know that is is our responsibility

when we did not manage the company well and made many serious mistakes. I had

analysed all of my decisions and the general results of the company to find out what is

the actual problems with our company. Moreover, I also did not manage my team well

and did not do a very good job in dealing with some problem in my team. Now I realize

all of my mistakes and have learnt a lot of valuable lessons and experiences to apply them

in my future career. Therefore, I constructed for future plan, for both short-term and long-

term to improve the performance and the position of our company in the industry. I have

a strong belief that if I and my partner had a change to play the Team Game again, we

would do it so much better. I also believe that with my future plan, I can recover our

company and will take back what we have lost.

VI. References

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1. McShane, SL & Travaglione, TA 2007, Organizational Behaviour on the

Pacific Rim, 2nd Edition, McGraw-Hill, Roseville, pp.114-416

2. Morgan 1998, Images of an organization, 1st edn, , Calif: Berrett-Koehler

Publishers, San Francisco, pp.35-44.

VII. Appendix

18

The First National BankOf

Business Simulations

The ApplicantsGroup Number 8

Team Number 2 Team Name Silver Star

Directors Name Title

1 Vu Duong My Ha Marketing manager

2 Nguyen Trong Tin Production manager

Mortgage

The Amount Required 150000 When RequiredQuarter 5

The Reason for the LoanPurchase plant capacity to increase the production process to improvethe sales

Total assets of the Company 751,610 Total Liabilities 357,817

Current Amount of Mortgages200000

Ratios

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Finance Management Report