Literature Review To Support Your Accounting Models Used (Case Study Sample)
write a management report to the leadership of coco limited regarding the following issues.
• Provide an explanation on the different sources of funding the company can have and their advantages and disadvantages and make recommendations as to how the company can manage the same to help in the planned expansion program.
• Analyse the Investment proposals by using NPV (net present value) and provide recommendations. You should also briefly comment on other investment proposal techniques that Coco may use, and the limitations of using those techniques
• The use of management tools such as Breakeven analysis and Budgets.
• A computation of your breakeven analysis and the cash budget for the first 3 months.
• An evaluation of the estimated company performance or position during the same period
• A detailed Literature Review of the tools you have used such as and budgets and their importance to business.
• Other issues for management to consider that you think are vital for them to survive and make a profit.
Every organization at one point must seek financial assistance in its quest to achieve its strategic investments. Sourcing of funds may be precipitated by need to purchase new equipment, purchase of new machinery and building. For the case of coco limited, the company wishes to raise funds for developing a new software and establishment of new offices in Scotland. Some investment require small amount of capital while other investment may require huge capital. Organizations therefore have the option to either use internal sources of funds such as retained earnings. Others may opt for external funding such as long term loans from financial institutions. The source of funding depend on various factors such as expected cash flow to be generated by the investment, the current gearing ratio of the company, shareholders expectations and market value of its shares if it were to be sold out. Before making any investments, companies should consider conducting viability analysis of the investment of interest. In broad terms, financial source of a company can be categorized as into two; equity funds which is internal and external financing in form of debt. Source of funds may also be categorized in terms of short term and long term duration. Short term funds are need for a period less than one year while the later stretches for a period greater than one year. For the case of coco limited however, the funds need for the two investments are long term source of funds since the proposal stretches for several years.
3.0 Literature review to support your accounting models used
Break-even analysis is a wide technique used by the production department and management accountants in making informed decisions. The technique categorizes cost into two; fixed cost and variable cost. Fixed costs are those cost that do not change depending on the level of output. This means that a company with a production level of 200 units has the same fixed cost with a company with a production level of 0 units. Variable costs on the other hand vary depending on the level of activity or output by a company. The totals of both the variable and fixed cost and compared with the overall sales revenue. The comparison is aimed at determining the point where the business production, sales value has reached a point where it's neither making a loss nor profit. Budgeting in terms of management accounting is the process where an organization focuses its financial and non-financial aspects in the future. Businesses can use budgets as a financial control, forecasting and management tool especially when conducting high cost projects. There are various types of management accounting budgets; master budget, operating budget, cash budget, production budget and static budget.
4.0Sources of Funding
Companies can raise funds through sale of shares. Equity financing means the company sells out some of its ownership to the public who form part of the company's ownership as shareholders. Equity finance applies to both companies listed in the stock exchange and private ones. Large companies that have gone public such as coco limited attracts institutional and retail investors during sale of its common shares. When seeking equity funding, coco limited should take into consideration the fact that interested investor have the rationality to seek information regarding directors, financial statements and the purpose of the funds raised.
4.2Advantages of equity financing
Business angels in form of investors may bring valuable skills to the company. Such skills may be rare and come at no cost in most circumstances. Take for example the current scenario where the company is willing to bring in an IT expert from United States to develop the software. Angel investor during the equity funding process may come in with highly qualified IT knowledge hence saving the Coco limited the cost of financing the IT expert.
Equity investors just like the management of Coco limited have interest in business growth. The new owners may therefore help in developing new strategies that could help coco limited improves its profit level.
4.3Disadvantages of equity financing
Raising of equity capital is demanding regarding the management activities. The whole exercise is time consuming, costly and may in the long run affect the management concentration.
Loss of decision making- equity funding means that coco limited will attract new investors who will demand ownership of the company. The new owners will therefore have powers to contribute in decis
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