FINANCE

Management of Financial Resource and Performance

Management of Financial Resource and Performance

Financial Resources Management

Financial Needs & Strategic Plan

Xanadu Manufacturing must develop a strategic plan in order to determine its financial needs. This can be done by identifying the strategic goals, including long-term and short-term goals. Then the business must determine how it will afford to accomplish these goals and targets. This is called a strategic or financial plan, which illustrates each of the resources, activities, materials, and equipments that are required to achieve those goals. Thus, a strategic plan will guide the company that how can it achieve its desired objectives i.e. what financial needs will arise and how it can fulfill those needs.

Given case scenario reveals the company has invested a huge amount in new sales campaign and new head office building in Downtown. These initiatives have impacted on company's profitability, and reduced it by a noticeable amount. This indicates that company did not identified needs of financial resources that are aroused by such activities. Therefore, it is recommended that the company must develop a strategic plan that include its goals and objectives to be achieved, how much funding will be required for achieving those goals, and how the company will fund those resources.

Comment On Statements

In statement 1 Lisa Smith, Chief Financial Officer, and Ben Graham, Financial Manager, discussed about the decline in gross margins. Ben makes a statement that gross margins are down despite company's better selling prices, and according to him this can be the reason of higher salary and benefits paid to the CEO. On the other hand, Lisa suggested that decline in gross margins is due to the higher amounts on new sales campaign as well as a new head office building they bought in Downtown. Gross margin is referred to firm's total sales revenue minus its cost of goods sold, divided by the total sales revenue, and expressed in percentage (Nelson, 2008, p.371). It clearly indicates that gross margins can only be impacted by sales, selling price, and cost of goods sold. This means that any change in production cost like cost of material, direct labor, overheads, and poor selling price or less sales affects the gross margins of a company.

Ben is the one that made a statement about decrease in gross margins despite better selling prices. However, he also referred to higher salary and compensation of CEO, which is irrelevant to gross margins as this expense impacts on operating profit. Similarly, Lisa stated the impact of new sales campaign and new office building. However, sales campaign is considered as an operating expense, indirect expense (marketing), and thereby it affects operating margins. Likewise, property purchase is also an operating expense, but in case it is purchased to increase the production capacity than it can be considered as a factor affecting gross margins. Thus, according to my view, Ben's statement about selling price and gross margins is right, but at the same time salary and compensation of CEO is irrelevant ...