MANAGING FINANCIAL PRINCIPLES & TECHNIQUES

Managing Financial Principles & Techniques

Table of Contents

1. Company overview3

2. Cost Concepts to the Decision-Making Process3

2.1 The Importance of Costs in the Pricing Strategy of an Organisation3

2.2 Costing System for Use within an Organisation3

2.3 The costing and pricing systems used by an organisation4

3. Forecasting Techniques4

3.1 Forecasting Techniques to Make Cost and Revenue Decisions in Organisation4

a)Qualitative Models4

b)Time Series Analysis5

c)The Causal Family5

d)Simulation Models5

3.2 Sources of Funds5

4. Budgetary Process of an Organisation5

Budgeting systems5

4.1 Appropriate Budgetary Targets for an Organisation5

Fixed budget6

Flexible budget6

4.2 Master budget for an organisation6

4.3 budgetary Monitoring Processes6

5. Cost Reduction and Management Processes6

5.1 Processes That Could Manage Cost Reduction6

5.2 Potential for the Use of Activity-Based Costing7

6. Financial Appraisal Techniques to Make Strategic Investment Decisions for an Organisation7

6.1 Financial Appraisal Methods to Analyse Competing Investment Projects in the Public and Private Sector7

a)Net Present value and internal rate of return7

b)Payback period technique9

c)Analysis report9

d)Payback Period Technique10

e)NPV (net present value)10

f)IRR (internal rate of return)10

7. Interpret Financial Statements for Planning and Decision Making10

References11

Appendix12

Gregg's Plc

1. Company overview

Gregg's Plc is planning to open around 600 more stores in the near future and it will create around 6,000 new retail jobs. More over the company is planning to extend the serving capacity of the existing retails outlets. (Gregg's Plc Annual report 2010, Pp. 2-45)The financial performance of the year 2010 shows a positive growth in the overall business activity of the company and the earning per share of the company has increased from 16.6 pence to 18.2 pence. The company has shown a steady growth over the past years and has more than 1,500 retail outlets and shops, with many city centres and towns having multiple stores.

2. Cost Concepts to the Decision-Making Process

2.1 The Importance of Costs in the Pricing Strategy of an Organisation

Price is a function of supply and demand. Notice the phrase “cost” doesn't happen there. It is factual that cost is, over the long period, a smaller compelled for price - else you'd proceed out of business. It is furthermore factual that high upfront repaired charges can conceive obstacles to application and thus smaller supply. The only case in which price is very resolute by (variable) charges is in a commoditized market. A market is commoditized when competing products are competently interchangeable and thus clients make conclusions founded solely on price. In commoditized markets, price tends to converge in the direction of cost.

2.2 Costing System for Use within an Organisation

We will use ABC method, Activity based costing technique. The Activity based costing is a method which assigns the cost to the activities first and then assigns the cost to products with respect to the activities. (Hicks 1999, Pp. 11-46)The basic philosophy behind the activity based costing is that every product uses and consumes resources and activities. The activity-based costing involves the following four steps:

Identification of activities (such as order processing) that allocate costs and consume resources.

Identification of the cost drivers associated with each ...