Management Extra: Financial Management
With numerous examples used throughout, this book aims to provide learners with the necessary understanding to input into the financial management of their organization.
TABLE OF CONTENTS Management Extra: Financial Management
Making Numbers Meaningful
The statement shown in Table 4.1 is for Omega Components which imports components for domestic appliance manufacturers. It shows last year's actual results (Year 1), the latest forecast to the end of the current year (Year 2) and the original budget for the current year.
| Year 1 | Year 2 | Year 2 | |
|---|---|---|---|
| Actual | Forecast | Budget | |
|
|
|
| |
| Sales | 14,000 | 16,000 | 15,000 |
| Cost of sales | 7,700 | 9,280 | 8,250 |
| Gross profit | 6,300 | 6,720 | 6,750 |
| Overheads | |||
| Salaries | 2,200 | 2,400 | 2,300 |
| Marketing costs | 1,500 | 1,800 | 1,800 |
| Administration costs | 1,000 | 1,300 | 1,000 |
| Other costs | 700 | 600 | 700 |
| 5,400 | 6,100 | 5,800 | |
| Profit | 900 | 620 | 950 |
Take a few minutes to look at this statement and answer the question: How is Omega doing?
Well, clearly the profit forecast for the year at 620 is below the budget at 950, which stands above last year's actual profit of 900. However, forecast sales are above budget and last year's figure of 14,000, whilst the forecast gross profit at 6,720 is also above last year's actual which is etc. etc. etc.
This sort of reporting on what is up and down really gets you nowhere and when written in financial reports is guaranteed to produce glazed eyes.
If we were able to say Forecast profit at 620 is 31 per cent down on the previous year because , this would be a firmer starting point.
Common Size Analysis
In fact, to...
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