Accounting and Finance AAF044-6 Sample
Introduction
The computing and software industry includes a significant part of computing and “computer programming” activities which are exchanged among the organizations that produce software for individuals or any corporate institutional consumers. The computing and software industry is one of the most superior industries in the UK. Softcat Plc. has been chosen in this report for assessing and evaluating the financial performance of the company. Soft cat Plc. provides customized “end-to-end encrypted” technology solutions that aid businesses and organisations to become successful. Softcat Plc. aims to provide the best technological support along with advice that would help the companies to focus on their goals and accomplish them. In addition to this, the chosen company provides specialized services across three main priorities of the “Computing and software” industry. The three mentioned priorities are “Digital workspace”, “cyber security”, and “hybrid infrastructure”.
Softcat Plc. has successfully built a vibrant, industry-leading business actress over a period of over twenty-five years. In addition to this, the chosen company provides an indefatigable devotion to the company-provided solutions and the customer’s services. One of the main goals of the company is to achieve ninety-five per cent customer satisfaction. In addition to this, another aim of Softcat Plc. is to become the leading company in the sector of computing and software by exceeding and maintaining employee and customer satisfaction levels. These are the essential resources of the company.
Like every other organisation, there are a few challenges that Softcat Plc has faced. These challenges were the main reason behind the company not meeting its expectations and goals. One of the most significant and unavoidable challenges that the company has been experiencing is at delivering a complex offering. The organisation also wanted to provide essentially more assistance to the sales team because the team was primarily driven by outbound sales. There are several aspects influencing revenue growth, and exemplary strides have been accomplished in every client segment and for every piece of software, hardware, and service. This was accomplished despite ongoing supply chain issues that are still solvable and are causing a comparatively small backlog of hardware orders. The upcoming fiscal year of the company should see an unpretentious reduction in this backlog.
Financial reports have been evaluated in this report for the purpose of better understanding and assessment of the financial performance of the company. In addition to this, the concept of contentious budgeting has been included in this report along with the challenges that may occur in the process of implementation of “continuous budgeting”. The importance of cash has been discussed in this report along with why “cash” is being preferred by the companies instead of the “cash to be received in future”. Furthermore, this report comprises the relevance of the “payback period” in terms of investment making decisions and whether the company should choose the investments with the shortest “payback period” or focus on some other aspects to invest in the project.
The main responsibilities of the “audit committee”, the membership of the “audit committee”, and the issues it concentrated on during the reporting year are all identified in the disclosures about the audit committee in your chosen company’s annual report. Where possible, these disclosures also make suggestions for improvements.
The capital structure of Softcat Plc
As per the viewpoint of Hirdinis, (2019), the “capital structure” of any company refers to the distinctive combination of the “equity” and “debt” of the company which are being used for financing the assets and the operations of the company. “Equity” depicts the more expensive capital source which is permanent in nature and comprises a greater level of financial security from the perspective of a corporation. “Financial flexibility” plays a major role in the capital structure of the chosen company as it enables the organisation to raise the required capital that is needed in the business on an appropriate term. On the other hand, the “debt” of a company depicts a cheaper source of capital, which is “finite-to-maturity” and legally binds a company to make a significant amount of the outflow and it has to maintain a fixed timeline so that it is possible to refinance at some point in future along with unknown cash (Alabdullah, et al, 2018).
There are many tactical considerations which affect the “capital structure” of the company. In addition to this, the usage of “leverage” by the company results in a numerous range of variations in the “capital structure” even among the competitors or even among the companies that are otherwise similar to the company. The considerations that are affecting the “capital structure” are the following.
- The characteristics of the business: The features that are associated with the business model, and maturity of the operations of the company.
- Policies for “capital structure” and leverage targets: The procedures or the guidelines that the management of the company set and the establishment of the expedient borrowing limits of the company. This has been implemented on the basis of the risk appetite of the company and the ability to repay the debts of the company.
- Condition of the market: The recent price level of the shares of the company and the rate of interest on the debts of the business. The preponderance of the lower level of the rate of interest allows the capacity of the company to carry the “debts” of the business along with the optimal usage and allocation of the debt by the company.
Continuous Budgeting
The process of adding consistently one more month at the end of the “multi-period” budget of a company after the end of each month, is known as “Continuous Budgeting”. The concept of “Continuous budgeting” is typically applied to the “twelve-month budgeting system”. Hence there will always be a “full-year” budgeting system in place (Alexander, and Irina, 2022).
Softcat Plc has not implemented the “continuous budgeting system” at the time of prep[aring the budget of the company. There are several advantages of implementing the “continuous budgeting system”.
Advantages of continuous Budgets
- With the implementation of this strategy, continuously monitoring the model of the budget and updating the budget’s fundamental inferences for the final increased awareness are being allowed (Amaewhule, and Eyikaregha, 2021). The application of the continuous budgeting techniques to “capital budgeting” permits funds for the allocation of major capital expenditure on the projects when it is essential, as objected to only one time each year as is conventional under the most conventional approaches of preparing the budget .
- Since continuous budgets offers a short-term frame of reference which is not unrestricted with a pre-decided allocation of the budgets. In addition to this, it allows flexibility and adaptability.
- Better “tactical utility” along with the reduction in “uncertainty” so that the cash flow can be controlled, containing disruptions, and even utilising additional knowledge to grasp chances of expandability of the business, investment, or higher level of profitability.
- “Zero-based budgeting” or “ZBB”, includes the amount of the allocated expenditure which is not relevant to the allocated amount of the previous year can be justified in every new period of budgeting (Dilger, et al, 2020). The implementation of “Zero-based budgeting” comes with great flexibility along with a greater level of responsibility. This enables the businesses to control the level of expenditure along with the accomplishment of the goals and adapting the corporate environmental changes.
Challenges of implementing Continuous Budgeting
While “continuous budget” offer considerable flexibility and enables instantaneous adjustments so that the company can match the changing conditions of the market or minimise business disturbances, implementing “Continuous Budgeting” does have some limitations, such as:
- Increased need for personnel, materials, and time. Costs may rise as people, resources, and time is put under more pressure. A single fixed budget is created, typically in the fourth quarter (Klotins, et al, 2022). It can take a lot of time to have to update the “continuous budget” either monthly budget, quarterly budget, or both. For the accounts and procurement teams, this is especially true. The procedure grows more expensive and complex as more players are involved.
- Without the engagement of the leadership of the company can depict the effects of implementing the “continuous budgeting system” and the growth of the organisation in comparison to the competitors of Softcat Plc. This additional effort can be entailed as inspirational.
- “Continuous budgets” can effortlessly be overwhelmed by businesses which still utilise “Excel spreadsheets” or the calculations are done in manual, “paper-based processes” because adding an increasing workload causes a rise in the requirements. These possibilities can be eliminated through the implementation of “continuous budgeting” in the business along with high-end cloud-based expenditure management and budgeting software such as “Planergy”. Manual calculations of the budget are a time-taking process and an essential centralised expenditure management system to save resources. In addition to this, it enables the company with great digital capabilities such as analysis of the business expenditures along with “unified data management”. As a result, human error is eliminated and accuracy, speed and efficiency are increased in all processes.
Though there are several challenges in the process of implementation of continuous budgeting in the financial analysis of Softcat Plc. The implementation of “continuous budgeting” comes along with numerous advantages.
3. Investment appraisal tools
Three reasons for the importance of cash received today than future
The basic fundamentals and theories of each and every business are familiarised with the value of time of money (Tolami, 2021). This basic economy states that a dollar that is received today is important and worth more than the same is received in future. The following reasons are Higher purchasing powers: Purchasing power constitutes the exact value of the money that is resolute in the commodities and services the company would obtain. It is straightforwardly linked to the rate of inflation and there is no secret about the uprising trend.
Opportunity cost: With money, the opportunity cost majorly refers to the capacity to invest the amount of money rather than just spending it. Receiving thousands of dollars today by company signifies that the mentioned company could invest and obtain interest to successive give the company with the principal amount (Parmar, 2018).
No less risk: Receiving the amount of money today make sure that the company already have the same so there are no tensions and worries about getting the money as it already has.
For the following reasons, it is finalised that the sooner and shortly the company get its money the better and more rate of interest and much amount of money the company will have in the upcoming days. It is also finalised that assuring the company to keep TVM (time value of money) in the back of the directors of the mind that from the next time the company manages the issues and problems of money it should be in for some huge amount of cash.
Investment projects with the shortest payback period
The payback period is the method of budgeting financial capital that assumes the duration of time required for the investment to produce a flow of cash and replace the investment cost (Abuseif, 2018). So the duration of time that is taken for the investment to obtain enough cash in order to pay for itself. The same is relevant to the management as it assists in projecting the risks of various investments. If the short-term flow of cash is a major concern then a short payback period might be much more attractive as contrasted to the long-term investment that acquires high net present value.
The longer duration of the payback period is much riskier and more undetermined as contrasted to shorter ones. If the earning inflow of cash by the investment acquires longer then there is the possibility of risk of no profit margin or breakeven. So the shorter payback period is always preferable to the mentioned company as if the company would recover its actual price in cash the investment would automatically become more acceptable and preferable. Nonetheless, the company should know that the principle of the payback period is not applicable for every type of investment such as it is with capital investments. The cause for it is that the computation does not take much TVM into the account.
4. Corporate governance
Main functions of the audit committee in Softcat Plc
The audit committee is in charge of making sure the company Softcat Plc functions in a legal environment and respects regulations and laws that comprise individuals who serve on the board of the company (Al , 2020). Charged with the supervision of internal controls, risk management and financial reporting audit committee is also in charge of choosing the companies of public accounting that serve as their external auditors of the company and also for handling the bonds with the own internal audit team of the company.
The width of the duties and roles of the audit committee is expressed by its duties of Softcat Plc. There are certain essential duties and responsibilities in the aspect of the audit committee of the mentioned company that are it ensure the financial statements of the company that are reliable and understandable, it makes sure that the company would construct thorough procedures of risk management and successful internal controls, reviewing the policies of the company specifically in the segments of conflict of fraud and interest and ethics, inspecting the regulatory and litigation proceedings of the company, choosing and executing a straight forward bond with the company of public accounting that serves as the external auditor of the company, constructing the communication within the internal auditor of the company and reviewing overall findings of the audit.
The audit committee also play a vital role in positioning the tone of the mentioned company (Alabdullah, 2020). They perform the same by ensuring their company initiates and execute a code of conduct and constructs successful channels of communication.
Issues and challenges in the audit committee of Softcat Plc
The members of the audit committee also require to be alert about the doings of the management to achieve compliance with regulations and laws and the same should be well-educated about the problems like disciplinary actions and ongoing inspections (Fadus, 2021). With such huge scope of duties and responsibilities, the committee would face essential issues and challenges. In the survey 2019 1300 members of the audit committee worldwide the audit firm KPMG found the two greatest issues and challenges to the audit committees of the company Softcat plc. performing their major supervising duties that are – poor maintenance of the internal control over financial reporting, disclosure processes and controls and lack of assisting in assuring that the company obtains certain resources and talent to handle the standard financial reporting (Roychowdhury, 2019). It also reported that the members of the audit committee of the mentioned company viewed innovations related to technology, digital disruption and the compilation of the business as the components that place the major compulsion on internal controls and risk management (Ullah, 2021).
Improvements in the audit committee of the Softcat Plc
There are various factors by which the audit committee of the mentioned company can improve it. They should have a strong chairperson in the audit committee who can smoothen the productive meetings and communicate successfully is much mandatory to the victory of the audit committee. They have to give proper training to the members of the audit committee from additional meetings, courses and retreats offered by the companies of the governance that assists the members of the committee to carry out their respective roles and responsibilities. A good performance in self-evaluation must be initiated in order to assist the audit committee in recognising and addressing the duties for upgrading and improving its supervision activities. The assurance of transparency in its functions should be practised to permit the audit committee to share essential details with the shareholders (Kahan, 2020). The construction of successful communication should be initiated both external with the management, board members of non-audit and audit and internally among the members of the audit committee. It will assist the audit committee in exhibiting the doings of the duties and responsibilities. The assurance of diversity among the members of the audit committee must be incorporated in terms of knowledge and experience magnifies its proficiency and abilities.
The most essential characteristic of a successful audit committee is strong communication with and the supervision of the auditors. In order to improve the audit committee of Softcatplc the company has to initiate a good working relationship and straightforward line of communication with the public accounting company that serves as the external auditor of the company. They also have to construct strong goodwill with the internal auditors to encourage successful internal controls (Leenders, 2019).
5. Conclusion
From the following report, it is concluded that the essential attempt has been initiated to know the dividend policy from the structure of corporate governance. The report also endeavours to present a review of the mandatory literature that is related to the effect of corporate governance on the dividend policy. The main functions of the audit committee in Softcatplc have also been considered in the following report along with certain responsibilities and duties among the audit committee members. The several challenges and issues faced by the audit committee of the following company have also been considered in the following report. By keeping in mind certain issues and challenges of the audit committee, a brief suggestion on the improvements of the audit committee of company Softcatplc has been taken into account. The projection of the investment appraisal tools has been considered in the following report along with some understanding of how the same would assist the company in achieving the corporate objectives and goals. The reasons for having cash is more important and worthy today than can cash that would be obtained in the upcoming days have also been contemplated in the following report. The evaluation and assessment of the strategy of the company that it should always go for the investment projects with the shortest payback period have also been taken into account in the following report. A fair projection of the dividend policy and capital structure and the involvements for the mentioned company also be considered along with certain details and information related to non-finances.
References
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