Finance for Strategic Managers
Role of Strategic Managers in an Organization
Looking at the competitive environment of current corporate market managers have various responsibility regarding carrying out the operations. In particular finance managers play crucial role because he/she have authority and responsibility regarding managing the inflow and outflow of funds within the company so that desired results and outcomes can be generated. Herein, researcher has undertaken the case of healthcare organisation which requires proper management of money so that proper medical services can be given to the patients. Therefore, investigator focuses on evaluating the need of financial information within the NHS along with this, its financial position has been evaluated on the basis of ratio analysis. Further, variance between short and long term economic requirement of business is illustrated with the help of different cash flow management tools and their significances. Lastly, ownership structure of structure and accountability of managerial level people in making decisions has been understood and viability of project is computed through the capital budgeting techniques.
To carry out the operations of business, varied information is required and especially financial information so that managers can make smart and effective decisions. Following are the financial information required by the managers of NHS:
The main purpose of gathering information related to economic prospects is to evaluate the need of funds or money within the NHS. Further, it assist in analyzing the current position of NHS and if required managers can take potential measures accordingly. Furthermore, through the means of assessing the information such as, firm's expenditures, revenues, operational performance, assets, liabilities and owner's equity, finance manager of NHS can make smart decisions of the raising the funds as well as the selecting the best suitable source.
Supportive investment decisions
having adequate and proper financial information leads to assist the managerial people to make smart and effective investment decisions. However, it is because, for investing the fund managers should identify the position of available funds which can be done only by assessing financial information. Herein, in-depth analysis of profitability statement assist the managers in making smart decision regarding use of reserves and surplus effectively.
Setting and meeting targets
On the basis of current financial position, managers of NHS set the future targets of business and accordingly employ the strategies to accomplish the goals. Apart from monetary decision it is important for the managers to organize meetings at regular intervals to assess the human resources needs and wants which indeed are the integral part of NHS.
NHS being of the biggest healthcare system in UK, needs to manage its risks and uncertainties in every department. Thus, managers requires proper financial information to manage all the risks associated with funding because without proper funds NHS will be unable to provide superior quality of medical services to its patients. In addition to it, to overcome technological failures and financial shortage as well as to meet needs of changing environment, managers requires proper information. Furthermore, financial information assist managers in making use of available assists in effective and efficient manner so that better revenue and profitability can be generated. By the means of this risks associated with use of cash flows can be managed adequately as well as future investment decisions can be taken appropriately.
Satisfying external and internal needs
In context to NHS, managers need such information because it helps in satisfying internal and external need of business i.e. employees, shareholders, suppliers, creditors, customers etc. Every stakeholder has its own interest within the functioning of NHS, thus, providing them adequate and accurate information will assist the course of stakeholders to make effective and smart decisions regarding future contingency.
There are several risks and uncertainties associated with the NHS and it may directly hamper the decisions related financial position. Thus, managerial level people require adequate and accurate internal and external information to support their decisions so that hurdles and hindrance can be avoided or mitigated.
In decision making process, market risk is considered as the most because constantly changing environment of corporate world, companies facing various risks associated with it. Further, NHS managers required to assess the conditions of market appropriately so that they minimize the effect of risk on services and operations. Herein, NHS management can take wrong decision regarding purchase of new medical equipment. It is because if the machinery is unable to satisfy the needs and wants of patients than it may possess high strategic risk for the NHS.
It is considered as the most common risk in all because it is an influencing risk that hampers the financial decisions of NHS managers. It is linked to the internal process of the hospital functioning. Present of such risk may affect the course of services offered to the patients as well as create obstacle in growth and development of certain departments of NHS. Herein, management of NHS invest in building new CRM with the aim of maintaining long term relationship with patients. In this case, if any breakdown occur in such software then it may leads to destroy all the confidential information about patients as well as affect the band image of NHS. Therefore, building and maintaining of CRM possess high monetary operational risk upon the firm.
There are various law and regulations that NHS has to comply in terms of operating smoothly within the market. However, change in policies or regulations like trade policies, health and safety regulations, taxation policy etc. may impact on the financial decision of business. In this regard, it is important for the management of NHS to make sure that they are updated with compliance and legislation so as to maintain the ethicality of business activities. By the means of this, senior authority may reduce the risk of compliance associated with the activities of NHS.
Before making any strategic financial decisions it is important for the managerial level people of NHS to gather appropriate information from the financial statements of the company so that they can justify their decisions. Following are the wide range of information that is required to make strategic business decisions:
Income and expenditure
Being a non-profit organisation, NHS managers requires adequate information regarding all the income generated and expenditure made during the reporting period so that they can make strategic decisions such as raising funds, introducing of new medical equipment’s etc. The income side of this statement assist in illustrating the revenue generated by the NHS during the course of accounting period. While on the other hand, the expenditure made by the NHS will be stated in the expenditure side of the statement. The main purpose of this statement is to cut down the unnecessary expenditure which may cause decrease of profit. Along with this, managerial people of NHS can make out growth prospects through the means of Income statement.
Cash inflow and outflow
The main purpose behind evaluating inflow and outflow of funds is that it helps in developing suitable base for investment related decisions. However, as per the data on cash available, managers can easily make the future investment decisions. Furthermore, cash flow statement clearly reflects the operating, financing and investment activities of business separately. By the means of this, managers of NHS can make reliable and suitable investment and financial decisions.
Forecasting of cash or cash equivalents is based on the budgeting or other forecasting techniques. The main purpose of projecting cash is to evaluate the reliable source of funding so that desired selection can be made that can fulfil the needs and expectations. In order to review the financial position of different department financial statements are assessed or reviewed. Furthermore, Profitability position of business assist in encouraging mangers to make more investment in near future so that they can take steps to enhance the business functioning and expand the different portfolios of the business.
Company publish its account to provide wide range of accurate and reliable information to different stakeholders.
Investors of NHS requires the information relating to profitability position, liquidity earnings of the company, solvency position and goodwill so that they can make decisions regarding future investments. In this, investors assess the ability of firm on the basis of return on equity and return on investment so that reliability of future investment can be evaluated properly and accordingly smart decisions can be made.
They requires the information regarding performance of NHS, its market growth opportunities and current financial position so that they can take decision on their own growth opportunities and economic hike. Employees assess financial condition such as growth and profitability of business so as to make decisions regarding salary, incentives, bonuses etc.
Suppliers: These people provide medical equipment’s to NHS thus, need to assess their liquidity position so that can make decisions on credit period as well as ability to meet short and long term financial obligations.
There are various tools to analyse financial information of business that managers of NHS can undertake such as:
Ratio analysis is a financial tool assist in evaluating profitability, solvency, liquidity and efficiency position of NHS so that if required potential measures can be employed in different areas and better results can be generated. Further, with the help of ratio analysis managers of NHS can compare the performance of business with past results, industry standards or competitor’s performance so that decision can be made on future contingency. On the other hand, Capital & revenue expenditure are expenses which NHS incurred while acquiring fixed assets. In this, costs related to buying of machinery, legal and registration charges, delivery charges etc. All these expenditures are recorded in balance sheet of NHS.
On the basis of above computation of ratio analysis it has been evaluated that, profitability position of NHS is not good because it offers free of cost medical services to its patients as well as it is a non-profit organisation. Further, GP of 0.11% and NP of 0.34% clearly indicates that despite of being a NPO, management is able to cover all its expenses from its operational performance. Further, liquidity position of NHS is showing better results which indicates the capability of firm in meeting its short term financial obligations through its current assets. However, current ratio and quick ratio of NHS is 1.43 and 1.34 respectively. In terms of efficiency ratio illustrates that, managers of the NHS are making effective use of its assets in terms of generating higher sales so that they can overcome short and long term assets.
Financial need takes place in every kind of organization. It is categorized into two that includes short term and long term. Short term finance is essential so as to meet daily requirements of the business and this is also useful for the purpose of managing business liquidity. Every business has to incur several expenditure; therefore it is necessary to have proper cash reserve ratio. Hence, with the help of such sources, NHS will be able to manage all the small scale operations and expenses in optimum manner. For instance every firm needs to make purchase of material, pay wages, rent, and advertisement expense and stationery charges. Therefore in order to meet such adequate amount of funds are needed by firm which is referred to as short term financing.
In contrast to this, Long term financing methods can be used in the case if the business entity desires to attain long term aims and objectives. As per the source, management can generate financial assistance through emphasizing more on long terms projects. Long term finance is essential for the purpose of purchasing land, machinery and also in the areas where huge investment is required. Corporate bonds, equity funding, loans, retained earnings and selling of fixed assets are some of the sources through which financial arrangement can be made. The organization need to purchase the assets such as property, plant and equipments. For this sake it requires long term finance. Hence, it can be said that both the sources are essential for the business entity and through such sources, NHS will be able to conduct all the practices in adequate manner.
Cash flow statement is useful in managing all the organizational operations in effectual manner and through this, expenditures can also be recorded in optimum manner. NHS can record all the expenses and income with the help of cash flow management and this further investment can also be made. Cash flow statement could assist NHS to identify the all those functions through which stable income can be acquired for the business entity. NHS should have to emphasize on increasing the ratio of working capital so that patients can be treated with effective services with latest technology. Moreover, NHS can also focus on budgeting technique in which every aspect of health care entity could be managed according to inflow and outflow of funds. Firm cannot survive without availability of adequate amount of cash. It is important for the manager to keep the cash flow management of organization's inflow and outflow. Further they needs to ensure surplus cash available for the business activities. Project cash flow is regarded as the tool that assists in administrating cash flow within the firm. In accordance with the tool manager needs to make determination of the potential earning for future and make efforts in order to attain this. They would make sure that actual expenses would not exceed the set maximum limit by the means of controlling and monitoring. In addition to this improvement in the receivable days as well as management of payables acts as an aid in enhancing the balance of cash. It assist in efficient resource allocation in several operating activities. Along with this they develop sales target and makes efforts in achieving them by the means of constructing several policies. Therefore organization would be able to possess surplus net cash available and carry out business activities in an effective manner.
There is presence of three types of business structure that possess their own requirement of financials as well as various responsibilities of demonstrating financial information. The structure of the firm involves sole trader, limited company as well as partnership. In case of sole trade single person owns and manages the firm. He makes investment of his own funds for the purpose of generating income. On the other hand partnership is regarded as the association among two or more individuals in which the they make investment of their capital and shares the amount of profitability. In contrast to this company is the legal body that came into occurrence by the means of taking into account of certain company laws.
Corporate governance and Legal as well as regulatory requirements
There are various corporate governance, legal and regulatory requirement for the firm like public and private. For the purpose of starting up new business private business requires share capital of £1. On the other hand public limited firms needs share capital of £50000 in order to form share capital for starting up new venture. In addition to this public limited needs to denominate shares of the organization in home currency. But this legal requirement is not essential for private business. Beside this for the purpose of starting up new venture it is significant for both private and public firms to demonstrate memorandum as well as article of association in appropriate way so that registration of business can be done with effectiveness. Every firm needs to comply with the legal as well as regulatory requirements. In accordance with the legislations organization needs to follow the provisions of Company's Act 2006. However in case of partnership organization has to comply with the partnership Act 1890. The legislation relating with the environment devise provisions that organization needs to comply with environmental rules and ensures protection of environment for the society.
Roles and responsibilities
The owners of the organization possess the responsibility to offer sufficient rights to the managers in order to ensure management. On the other hand executive has crucial role towards management of the business operating functions. They possess the responsibility to make analysis of organization's historical performance and take right decision on right time. They makes determination of potential growth and manage financial as well as operational risk. They possess responsibility towards construction of several policies, rules as well as regulations as well as ensure successful carrying out of operations.
Investment appraisal is considered as the process that can be utilized for assessment of whether the investment project is worth to be conducted. The technique of capital budgeting involves net present value. This has been computed in the manner stated below:
Net present value
It is referred to as the method that states difference among the total discounted cash inflows and initial investment. The project that possess higher NPV can be selected by the organization. It has major benefit in terms that it takes into account time value of money. On the other hand this technique can be difficult for use. Moreover it cannot give accurate outcomes if the amount of investment of mutually exclusive investment plan is not equal.
It can be interpreted that Project B needs to be selected as it possess greater NPV. However decision regarding rejection of Project A is required to be done by organization.
It can be concluded from the study that financial information is needed for the purpose of decision making. In addition to this it has been inferred that financial position of NHS is sound and it discloses its accounts in an effective manner.
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