FINANCIAL MANAGEMENT

Financial Management in Facilities Management



Financial Management in Facilities Management

Describe management accounting techniques which support the facilities management process and the financial systems and processes used for the effective management of facilities management budget within your company.

Financial Ratio Analysis

In order to asses any company, financial statement analysis in general and ratio analysis in particular are the first step in the process. These ratios are calculated and compared to some benchmark figures which can be forecasted results, historical ratios, direct competitors performance and industry averages. Financial ratio analysis forms the relationship between different parts of the financial statements; two key financial statements of any company is income statement and balance sheet. Income statement measures the performance of the company during the particular period while balance sheet shows the financial position of the company at a particular point. Majority of the ratios can be calculated by deriving out data from these two financial statements. This ratio serve as a guide for the various decision makers (in our case, board of directors) when analyzing different dimensions of the business. The purpose of these ratios is to point out areas which need to be considering while making any decision. The ratio analysis can be categorized into five dimensions; profitability, efficiency, solvency, liquidity and investment. As the title, of each category suggests, ratios falling under each of these categories measure respective aspect of the business.

Profitability

The purpose of profitability relates to a firm's ability to produce a reasonable profit so that the shareholders and investors will keep providing capital to it for its operations. A firm's profitability is connected to its liquidity for the reason that earnings eventually produce cash flow. For these rationales, profitability ratios are imperative to both potential investors and shareholders.

Gross Profit Margin

Goss profit (GP) margin is a profitability ratio defined by gross profit over sales.

GP Margin =

Operating Profit Margin

Operating Net Profit Margin is a measurement of company's financial ability to absorb its fixed cost which includes interest on debt. It is determined after deducting the variable cost from the gross margin. It is calculated by dividing the operating profit (EBIT) by sales revenue.

Operating Profit Margin =

Return on Capital Employed

Return on capital employed is a profitability ratio of company's financial investments. It is calculated by dividing capital employed including Long term loans from operating profit before interest and taxes.

ROCE =

EBIT is given in the income statement. If we subtract the current liabilities from Total assets, we can get the Capital Employed. (Capital Employed = Total Assets - Current liabilities)

Efficiency Ratios

The efficiency ratios are the reflection of management's performance in the way that it shows the efficiency of the firm in settling down its various accounts. Since, management play a key role in the formulation of policies that will directly impact these accounts, so it is also a measure of their performance. Efficiency ratios can be evaluated in isolation. It is ideal to compare it with some reference like the previous year ratio and ...