Unit 2 Developing Financial Strategies

Return on capital employed is comparison of operating profit to capital employed in the business. It shows how much a company generates profits by employing its capital in business.

The second strategy that I will use to inspire my representatives is the prizes at the working environment. I have five stages of this procedure moreover. To begin with, this will done on week after week premise and assignment premise. My third step will be to perceive workers who are performing great. Declarations will made at workforce gatherings. "The basic demonstration of indicating gratefulness for an occupation well done is a capable motivator (Proverbs 16:3). This progression will propel other people who see the well-doings of their associates and ideally they will need a slice of the profits. The fourth step will be the particular stage. Any workers whose execution reliably surpasses the organization's desires will have an opportunity

Operating income is the amount of profit realized from operations after removing operating expenses such as the cost of goods sold and employee salaries. For CBI, operating income increased strongly (154.6%) between years 6 and 7. However, operating income between years 7 and 8 is strongly negative, with a 69.1% decrease. This is due to the fact that gross profits dropped by 16.3% during this time period, but total operating expenses decreased by only 3.6%. This is not sustainable over the long term and is a weakness for CBI. They need to reduce their production expenses wherever possible, become more efficient in their

To put it simple way, first we have to understand optimal capital structure is maximizes a firm’s stock price, and the target capital structure is mix of the debt, preferred stock, and common equity the firm wants to have (Eugene and Joel 2009). The capital structure is also showing how a firm use different sources of funds to finances its overall operations and growth the stock price.

* Operating activities: relate to the principle revenue-producing activities of the entity, cash effects of transactions that create income and expense

Capital structure is defined as the mix of the long-term sources of funds that a firm use. It is composed of equity, debt securities and affect long-term financing of the entity. It is made up by shareholder’s funds, long-term debt and preference share capital. The capital structure mostly focus on the proportions of debt and equity displayed in the company financial statements, especially in the balance sheet (Myers, 2001). The value of a firm can be calculated by the sum of the value of its firm’s debt and equity.

This shows the firm's profitability from current operations without considering the to the interest charges accruing from the capital structure.

Time is limited to the gambling game, when the game is over you either win or lose while some investments in companies last for years. Investing can be time rewarding, some stockholders benefit from dividends payment and others benefit from the capital appreciation. Investors see the longer the period of the investment the higher the probability they could gain higher return.

As the Kano fashions are estimating financial implications regarding a corporate bond of £50 million they can determine an optimal capital structure using the following theories:

It goes contrary to the idea of firms having a unique combination of debt and equity finance, which minimize their cost of capital. The theory suggests that when a firm is looking for ways to finance its long-term investments, it has a well-defined order of preference with respect to the sources of finance it uses. It states that a firm’s first preference should be the utilization of internal funds (i.e. retain earnings), followed by debt and then external equity. He argues that the more profitable the firms become, the lesser they borrow because they would have sufficient internal finance to undertake their investment projects. He further argues that it is when the internal finance is inadequate that a firm should source for external finance and most preferably bank borrowings or corporate bonds. And after exhausting both internal and bank borrowing and corporate bonds, the final and least preferred source of finance is to issue new equity

The Client has an intermediate term because he plans to withdraw the money in 5 to 10 years’ time. Therefore, investments in stocks and bonds would likely grow the initial investment’s value of RM500, 000. The amount of time is long enough to allow a degree of volatility.

Operating revenue - the sales associated Income derived from transactions not involved in daily operations of a business. For example, rent received from other business properties.

The Optimal Capital structure is that Capital Structure at which the weighted Average cost of capital (Ko) is Minimum. It is that combination of Equity and Debt at which the total cost of capital is mini-mum.

If a manager wants to increase their company’s operating income, there are endless options available. He could come up with a new advertising campaign to increase sales, decrease employee wages, or negotiate lower prices for raw materials with vendors. However, if a manager wishes to increase the company’s net income without doing something similar to the above, a little bit of accounting “magic” might do the trick.

The study of capital structure tries to clarify this variety of securities and financing opportunities. In accounting terms, this decision is situated on the right-hand side of the balance sheet (Myers, 2001). In his Capital Structure Puzzle article, Myers (1984) poses the question “How do firms choose their capital structure?”. But even today, there is no right solution to this question. In the literature, there are three central theoretical models: the tradeoff model, the pecking-order hypothesis, and the agency