Sunday, February 23, 2020

Managing Financial Resources and Decisions Assignment - 1

Managing Financial Resources and Decisions - Assignment Example The paper will be divided into 4 sections. Section 1 will be focused on assessing the tangible cost and the opportunity costs incurred by Tesco when raising share capital through shares, bonds and proposed dividends, with hypothetical illustrations. Section 2 will aim at explaining the role and significance of financial planning in Tesco, while section 3 will remain focused on identifying the needs that investors of Tesco might essentially seek in respect to the fund raising activities of the company. Taking note on the changes expected in the PE (Profit-Earning) ratio, EPS (Earning per Share) ratio and ROCE (Return on Capital Employed) owing to its fund raising activities, section 4 will be constructed. Section 1 In correspondence to the three optional measures that Tesco can consider to raise its capitals, it was observed that the tangible cost will be as follows. Correspondingly, the opportunity costs associated with these options will be, As can be observed from the above analysi s, it is likely and suggestible that Tesco decides for option 1a, having least opportunity cost of ?5,500,000, considering its next best alternative to be option 1b. Section 2 Financial planning assists large companies in finding out the best possible ways to generate the cash flow and to make the capital investments effective by incurring limited degree of risks. Large companies often face issues in dealing with complexity issues when deciding for capital gains owing to the varied range of sources available, ranging from shares, bonds and other financial instruments. Financial planning thus helps a large sized company like Tesco in identifying the best investment opportunities, keeping in account the investors’ interests. Financial planning also assists with the effective forecasting of the implications that the funding strategies may impose on the investors’ decision, considering the results from ratio analysis and other similar mechanisms (Greenwood, 2002). Section 3 The range of information to be required by the financial decision makers in Tesco may include details of the market investment trends, competitor’s influence on the demand of its products, market structure, regulatory norms applied to funding sources and changes in the market pricing trends concerning the fact that Tesco deals with consumer goods, which are highly influenced by market volatilities (Chartered Institute of Management Accountants, n.d). Section 4 Considering options 1a and 1b, as the most suitable options for Tesco, it can be observed that option 1a will be more beneficial as it is capable of yielding a higher P/E ratio, indicating that investors shall pay more for every dollar in comparison to option 1b. While the EPS ratio remains the same in both the instances, the ROCE reveals a contrasting situation where capital employed in option 1b is likely to have a higher return as compared to option 1a. This reveals that Tesco shall be able to obtain better efficie ncy in its capital allocation following option 1b. Source: (Tesco PLC, 2013) Conclusion From the above analyses that fund raising strategies used by Tesco is quite likely to impose strong effects on its financial statements and thereafter determine the decisions of its investors either favorably or unfavorably. A proper financial planning and effective decision making thus play a major role in the effectiveness of the business. References Chartered Institut

Thursday, February 6, 2020

Corporate Strategy Essay Example | Topics and Well Written Essays - 3000 words

Corporate Strategy - Essay Example The company changed its name to Air France KLM, though the two companies operate separately. Delta Airlines had a merger with Northwest Airlines in the years between 2008 and 2010 that made the former become the world’s No.2 passenger carrier after United Airlines. The company still maintains the Delta name. We also visit United Airlines that merged with Continental Airlines in 2010 to become the world’s largest airline company/carrier. Airline acquisitions and mergers have implications on airline customers and employees. These business moves have some interlinked factors that are important in understanding what really takes place; Efficiency, approvals, competition, strife and benefits to the airline customers (Kelly et al, 2002). In the airline industry, mergers and acquisitions are purely strategic and are pursued after putting several factors into consideration: Service quality and image of the other airline, possibility of the other airline company to have partners hips with airlines considered industry rivals and the area covered by the other airline, which is of interest. Strategically speaking, an airline entity would merge with another airline company that operates on different routes from those that it operates. This expands flight coverage and helps in avoiding overlapping of flights in any given routes. One of the effects of acquisitions and mergers on airline customers is that air fares increase. Such business moves reduce the number of operators thus reduction in competition. The result is an increase in fares and rates. Acquisitions and mergers are most active when there are equity markets with low volatility and low rates in interests. There is also an upward trend in mergers and acquisitions, when stocks trade in low multiples. Mergers and acquisitions have the tendency of being instigated and driven by market conditions and factors that are favorable (Kelly et al, 2002). The drive to transact mergers and acquisitions mainly starts with the parties involved who have strategic objectives that are to be achieved at the tail end of such transactions. The strategic objectives of selling and buying converge in a manner that fuels the transaction process. For instance, the parties involved may enter into such agreements in order to stay afloat in the market or the merger and acquisition plan will facilitate a leaner, profitable, and successful company. These transactions could be done with the objective of strategically positioning the resultant business entity for the necessary growth. There are strategic reasons that explain the existence of these kinds of businesses: financial growths, achievement of vertical integration, outdo competition, asset acquisitions, expansion into new markets, gaining of intellectual property (IP), acquisition of new customers and clientele, expansion into complimentary services and products, and the need to outdo threats on entity services and products (Bierly & Coombs, 2004). There were developments that led the above named airline companies to venture into these kinds of agreements. United airlines merger with continental airlines was driven by the urge to create the world’s most lucrative airline that would taste success in the competitive domestic and global airline sector. The resultant entity would offer unique and superior services and products to its prospective customers. The resultant company would also serve a global airline network of 370 destinations. The