CMI UNIT 7007 ASSIGNMENT

CMI Unit 7007 Assignment: Financial Accounting



CMI Unit 7007 Assignment

Managers must understand how the financial plan supports an organization's strategic objectives

Assess the impact of market development on financial plan

Market Development is one of the strategies in Ansoff's Product/Market Matrix. The purpose of this strategy is to use existing product to broaden the customer base by entering in to new market segments. Companies choose this strategy to increase the gross sales level, to achieve advantage of economies of scale, or there are attractive investments avenues present in other markets. Although, the market is new for the company, but the product is familiar so relatively to other strategies, risk is moderate in market development strategy. The financial implications of the strategy of the MNC going in to Brazil can be evaluated from different dimensions. Since the company is going into a new market, there will be a lot of cash outflows initially, on account of research and development, CAPEX, higher working capital, etc. Before entering into the fresh market, MNC will undertake a market research to analyze the market and potential customer's base. Further on, they will also design marketing and promotional activities to create awareness about the product and brand. R&D and advertising cost will result in cash outflow, which will be shown in cash flow statement, of the company. Since it is a manufacturing firm, it has to establish a manufacturing plant in Brazil which is the additional cost and will be shown as CAPEX on the financial statements. Recurrent Expenditure will also be increased because of additional production of units. Moreover, inventory will also increase as the production units will increase. As the production of units will rise, the gap between current assets and current liabilities will also rise and result in higher working capital requirements. One of the major risks which the MNC will face is currency risk. This risk arises due to fluctuation in the exchange rate at which foreign currency is convertible at local currency. A company who has presence across multiple geographic region i.e., countries often face this type of risk. The net income of the subsidiary is converted at a constant interval in domestic currency, depending upon the company's policy. The fluctuation in foreign exchange rate can cause serious problems and might distort the real picture of performance of subsidiary companies of MNC.

Importance of each component of financial plan

The financial plan consists of forecasting the financial statements of next two years based on current year. There are two financial statements given in appendix; balance sheet and income statement.

Balance sheet

Balance sheet shows the position and composition of company's assets, liabilities and equity. Balance sheet shows the summary of company assets, liabilities and equity at any particular time. Assets are the company's main resources which has the ability to generate returns for the company. In order to take access on these resources, company finances these resources through liabilities and owner's equity. Liabilities consist of accrued expenses and ...