2. Financial result kontrollisysteemit Flashcards
Is financial controls only about costs?
HELL NO!
Financial control does not mean only control of costs, but also revenues and profitability!
Anna 4 esimerkkiä TYPES OF FINANCIAL RESPONSIBILITY CENTERS?
- Investment centers
- Profit centers
- Revenue centers
- Cost centers
- In practice, these can mean different things in different firms, e.g. profitability of a profit center can be measured in many different ways
How do you MEASURE PROFITABILITY?
Profit
– Gross Profit
– EBITDA
Return on investment based measures
– ROI, ROIC, ROE,
Residual income based measures
– RI, EVA, EP, etc.
Cash Flow
What EVA tells?
EVA is an estimate of the amount by which earnings exceed or fall short of the required minimum rate of return for shareholders or lenders at comparable risk.
ECONOMIC VALUE ADDED (EVA)
IN ECONOMIC VALUE ADDED (EVA) COST OF CAPITAL IS DEDUCTED FROM PROFIT
- EVA is net operating profit after taxes minus a charge for the opportunity cost of the capital invested
EVA = Economic Profit = Residual Income (RI)
Eri tapoja laskea EVA?
EVA = PROFIT – CAPITAL CHARGE
EVA = NOPAT – ((TOTAL ASSETS – NON INTEREST BEARING LIABILITIES) x WACC)
EVA = (ROI – REQUIRED RATE OF RETURN) x INVESTED CAPITAL
Miten lasketaan NOPAT?
NOPAT = NET OPERATING PROFIT AFTER TAX = OPERATING PROFIT or EBIT x (1 - Tax Rate)
What NOPAT tells?
NOPAT evaluates profitability as if no leverage is used
Kerro lisää EVA:sta?
EVA
* Combines shareholders interest to the control systems
* Adds required rate of return into the calculations, i.e. accounts for risk
* Absolut measure, which is compared with the budget/target.
* Budget/target is defined based on the required rate of return
* Creates correct incentives for SBU managers to invest
VALUE BASED MANAGEMENT (VBM) - BASIC FRAMEWORK?
- Choose internal objectives that lead to shareholder value enhancement
- Select strategies and organizational designs that are consistent with objectives
- Identify Value Drivers
- Develop action plans, select performance measures, and set targets
- Evaluate and reward performance
- Assess the ongoing validity of above and modify as required
WHY ORGANISATIONS DO BUDGET FOR?
It allows a business to plan out expenses, reach business goals and anticipate any operational changes as needed to support the business.
A budget helps a business understand its operating costs and can be used to track performance.
Mitä on budgetary control?
It means regularly comparing actual income or expenditure to planned income or expenditure to identify whether or not corrective action is required.
What is BEYOND BUDGETING?
Beyond Budgeting is the idea of abolishing traditional budgeting processes to eventually improve management control over an organization.
By abandoning traditional budgeting processes, a company aims to establish a highly decentralized organizational system and adaptive set of management processes
Mitä on ROLLING FORECASTING?
Rolling forecast is a report that uses historical data to predict future numbers continuously over a period of time. Rolling forecasts are often used in financial reporting, supply chain management, planning, and budgeting across every department.
Why to forecast?
Companies use forecasting to help them develop business strategies. Past data is collected and analyzed so that patterns can be found.
