STRATEGIC FINANCE ISSUES

Strategic Finance Issues

Question 1

a) i. Identify the external user groups that are affected by the voluntary administration, and how they are affected.

Voluntary administration refers to an activity of whereby a financially insolvent company appoints an external administrator to run the operations. In this operation, the powers of CEO and directors are invalid since their input is not taken in the decisions. The job of the administrator is to revive the company and take appropriate decisions; these decisions may vary depending upon the situation (Bazley, 2009). An administrator would investigate the situation of the business, its financial constraints and based on the evaluation, recommend the director if the if the company should go into liquidation, enter into a deed of company arrangement, break the business into multiple units of return the company back to the directors.

External user groups include creditors, investors, tax authorities, customers and regulatory bodies. These user groups are will be affected by the appointment of external creditor since they have their stake in the organization. Creditors seek information about the results of operations of the entity where they invested their resources. They have to regularly assess the capability so that the business is able to cope up with the commitments made by them, in the sense of repaying borrowed resources and interest. Regulatory authorities and government is always interested in the financial statements of the company, including the profit and to collect the taxes owed. Customers are interested in information about the continuance of the company, especially when they have a long-term relationship or are dependent on it.

Since external user groups have considerable stake with the business, the actions of the volunteer administrator would determine if the business would be able to continue and fulfill their obligations or not.

ii. What is the information needed by these groups and the sources of information for making their decisions related to the voluntary administration?

Financial Information entails the detailed analysis and information about the company. It helps the external user groups to have a proper and comprehensive understanding about the company. Creditors, Investors, Regulatory Bodies, Central Bank, Suppliers and government bodies can take information about the company as well. Financial information aide investors' insight as they are better able to make decision concerning the investment. Their needs and wants must be kept in mind, and they must be given most importance (Gary 2009, 104-138). It gives a complete picture of the company to various classes of society to enable informed and astute business decisions.

Since partners, creditors, public finances, employees, investors are Users of financial statements are those that use financial statements to make economic decisions. They need accounting information because they are interested in knowing the future benefits they will receive if they purchase or maintain a financial instrument or equity instrument. Creditors and suppliers need to know if the company will have cash to meet payment obligations in the short and long term, and the ability to generate profits. The general public, voters and their representatives need financial information ...