AAF044-6 Accounting and Finance
AAF044-6 Accounting and Finance
1. Introduction
Accounting and finance both are important factors as well as integrated aspects from different points of view such as ensuring effective finance and costs management. In the current report, key accounting features of Lotus and its impact on the overall financial health of the company. After that, the role of budgeting to measure profitability was also discussed. After that, key facts that need to be considered by Lotus to accept an investment proposal were also highlighted. The main functions of audit committees and their members also cuss in current reports, which may assist Lotus to observe key facts regarding the overall development of a business.
About Company
LOTUS is a UK-based globally renowned car manufacturing entity established in 1952 (Lotuscars, 2023). The organisation has been making elite execution sports vehicles for quite a while. These automobiles are known for being light, agile, and enjoyable to drive. LOTUS is an auxiliary of Chinese car tycoon Geely, with its central command in Hethel, Norfolk (Lotuscars, 2023).
LOTUS has always strongly emphasised producing sports cars that are enjoyable to drive and perform well. The planning, putting together, and selling of high-performance sports cars, as well as broadening the company’s product offering and expanding its global reach, are the primary corporate goals of the company. To achieve these objectives, LOTUS has invested assets into imaginative energy to make inventive and cutting-edge progressions that further develop its vehicle execution and prosperity features.
LOTUS has a strong reputation in the automotive industry thanks to its high-end design capabilities, talented workforce, and partnerships with other automakers. The organisation’s overall standing for assembling superior execution sports vehicles is a significant resource that empowers deals and client dedication. In addition, LOTUS has advanced engineering capabilities that enable it to design and produce its own automobile engines and components, giving it an advantage over rivals in the industry. Additionally, the company collaborates with other businesses to benefit from their expertise and broaden its product line. Its talented staff is driven by a passion for making high-quality automobiles.
LOTUS faces a number of management issues and challenges in achieving its market objectives despite its strengths. The savage rivalry in the games vehicle industry is one of the fundamental hindrances. It is difficult for LOTUS to keep a huge portion of the market since there are countless laid-out and new players on the lookout. The association furthermore faces challenges associated with “managerial consistency, store network the board, and changing client tendencies”. LOTUS will actually want to remain in front of the opposition and meet the changing requirements of its clients assuming it centres around development and nonstop improvement to defeat these impediments.
Overall, LOTUS is an English games vehicle maker known for creating thrillingly charming elite execution sports vehicles. To achieve its corporate objectives of expanding its product portfolio, expanding its global presence, and designing and manufacturing high-performance sports cars, the company has invested in advanced engineering capabilities, partnerships with other businesses, and a talented workforce. Notwithstanding, the organisation should conquer various administration issues and deterrents, including rivalry, administrative consistency, store network the board, and moving client inclinations, to accomplish its targets.
2. Budgets as a measure of performance
Businesses plan and manage their financial resources largely through the use of budgets. Spending plans can help organisations achieve their financial objectives and serve as a guide for financial management. Financial plans can also be used as an example by comparing actual results to amounts planned. The degree to which the association is achieving its “goals and the areas” in which improvements are required are revealed by this correlation. However, because this information can assist the organisation in identifying the areas that are performing well and replicating those practices in other areas, it is essential to investigate favourable variances to determine their cause. There are many ways to use budgets to measure performance. The most important ways that budgets can be used to evaluate performance in this section.
Evaluation of financial performance
Budgets can be used to assess an organisation’s financial performance. By contrasting genuine monetary outcomes with planned sums, the association can distinguish regions where performing great and regions that require improvement. “Revenue, expenses, profit, and return on investment” are all examples of financial performance metrics, which must be considered by the company when it wants to take optimum advantage of financial performance.
Functional execution assessment
Financial plans can likewise be utilised to assess the functional presentation of an association. Production output, customer satisfaction, employee productivity, and efficiency are all examples of operational performance metrics. As discussed by Anessi et al. (2020, p.14), by contrasting genuine functional outcomes with planned sums, the association can recognize regions where performing great and regions that require improvement. With the health of the budget, they are only able to allocate optimum funds to different departments such as “HR, employee development, innovation and R&D”.
Goal setting and monitoring
Setting goals and keeping track of progress toward them can also be done with the help of budgets. By setting a spending plan that focuses on “income, costs, and other key execution pointers”, the association can lay out clear focuses to pursue (Barbera et al. 2020, p.14). The organisation may be able to identify areas where it is falling behind and take corrective measures with the assistance of regular monitoring of progress toward those goals.
Benchmarking
Financial plans can likewise be utilised for benchmarking against contenders or industry guidelines. As argued by Leoni et al. (2021, p.13), the company is able to identify areas in which it is underperforming and take steps to improve performance by comparing actual results to industry averages or benchmarks.
Reasons behind favourable variances investigated to discover their cause
Financial plans can be used as a proportion of execution by contrasting actual results with budgeted sums. The degree to which the association is accomplishing its targets and the regions wherein upgrades are required are uncovered by this examination. Spending plans can be used to evaluate performance at various levels of the company, including individual divisions, groups, and the organisation as a whole. As suggested by Alsharari (2020, p.5), by contrasting genuine outcomes with planned sums, the business can recognize regions in which it is performing great and those in which it needs to get to the next level. For instance, if a department’s actual costs exceed its budgeted costs significantly, it may indicate that the department is overspending and needs to be reorganised.
The utilisation of good changes to quantify execution as per a few specialists may prompt smugness and not give a total image of execution. Great swings occur when actual results exceed planned amounts. They are frequently celebrated by the association and are typically regarded as encouraging news. Positive variances, on the other hand, need to be looked into to see if they are the result of improved performance or of other things, like changes in the market or economy. As argued by Jorge et al. (2021, p.47), the positive changes that lead to better execution should be praised, and the methods that led to better presentation throughout the organisation should be replicated. In any case, if positive differences are brought on by external factors, they may not accurately reflect execution, necessitating additional measures.
It is important to explore great changes that can consume, cost tremendous amounts of money, and not be guaranteed to yield information. Focusing on identifying the areas where the business is performing poorly and taking steps to improve performance may be more beneficial in some situations (Ahrens and Ferry, 2021, p.19). Additionally, the setting in which ideal fluctuations occur must be considered. In contrast to when the economy was growing, positive variances may not be a reliable indicator of performance during a downturn.
Overall, financial plans can be utilised as a presentation measure by contrasting genuine outcomes with planned sums. As opined by Daniel et al. (2020, p.15), the degree to which the association is accomplishing its targets and the regions wherein upgrades are required are uncovered by this examination. On the other hand, positive variances require investigation to determine their origin and whether or not they provide an accurate performance measurement. If the positive changes are the result of better execution, they should be celebrated, and the procedures that led to the positive display should be implemented across the organisation (LE and Nguyen, 2020, p.18). Positive variances, on the other hand, may not be an accurate indicator of performance if they are the result of external factors, necessitating the use of additional metrics.
3. Acceptability of an investment proposal and its depends on the company’s cost of capital
An investment proposal’s acceptability is determined by the company’s cost of capital, which is the minimum rate of return an organisation must earn on its investments to maintain its market value and attract investors. As argued by Magni and Marchioni, (2020, p.18), this is because any venture that creates a return beneath the expense of capital will bring about a deficiency of investor esteem. The cost of capital is the opportunity cost of investing in a specific asset or project.
The cost of capital plays a significant role in determining the worthiness of a speculation proposal, as evidenced by the English game vehicle manufacturer LOTUS. Since it works in a profoundly serious and capital-escalated industry, LOTUS should cautiously assess its speculation choices to guarantee that they produce sufficient returns and make an incentive for investors (Fontes et al. 2020, p.15).
One of the essential justifications for why a speculation proposition’s worthiness is subject to the organisation’s expense of capital is the grounds that a venture should create a base pace of return to be thought of as monetarily reasonable. For instance, if LOTUS has a cost of capital of 10%, no investment proposal with a return of less than 10% will be accepted because doing so would lower shareholder value. As a result, the cost of capital serves as a standard by which investment proposals can be evaluated for their viability financially. Since it mirrors the dangers related to speculation, a venture proposition’s agreeableness additionally relies upon the organisation’s expense of capital. Investments that are less risky, like those in untested technologies or emerging markets typically have a higher cost of capital (Ibrahim et al. 2021, p.15). This is on the grounds that financial backers need to compensate for the additional gamble by getting a higher pace of return. Subsequently, the expense of capital and hazard resistance of each organisation will decide if a venture is adequate for them.
On the other hand, to achieve its business goals in its markets, LOTUS must continue to be competitive by investing in product development and new technologies. New technologies not only assist to overcome its current barriers nevertheless, also augmented its entire manufacturing operations which also Accordingly, the organisation needs to painstakingly assess the speculations it makes to ensure they are in accordance with its essential targets and give adequate returns.
The expectations of investors, interest rates in the market, and the degree of risk associated with the company’s operations all have an impact on LOTUS’s cost of capital. The administration and monetary experts of the organisation watch out for these things and utilise various monetary devices and strategies to assess venture propositions.
One of these tools is the NPV (net present value) analysis. It utilises the organisation’s expense of funding to limit the current worth of future incomes created by a venture proposition. If the NPV of a hypothesis recommendation is positive, it is seen as financially reasonable and good, as it creates a return over the cost of capital. The venture is discarded if the “net present value” (NPV) is negative because it would undermine investor confidence (Senthilnathan, 2020, p.51).
Overall, an organisation’s cost of capital, or the minimum rate of return it must earn on its investments in order to maintain its market value and attract investors, determines whether an investment proposal is acceptable. As suggested by Abdurofi et al. (2021, p.16), to guarantee satisfactory returns and investor esteem in an exceptionally cutthroat and capital-serious industry, LOTUS’s speculation choices should be painstakingly assessed. LOTUS is able to evaluate the financial reasonableness of hypothesis recommendations using financial instruments like the NPV assessment, and it is able to seek informed adventure decisions that align with its fundamental objectives and serve as a long-term motivator for its financial backers.
4. Disclosures about the Nominations committee
The British automaker Lotus has been around since 1952. It is a well-known brand known for its automotive industry innovation and engineering expertise. Over the past ten years, the business has had to deal with many problems, like ownership shifts and financial difficulties. In any case, under the ongoing administration of Geely, a Chinese worldwide auto organisation, Lotus has had the option to rebuild and zero in on creating elite execution vehicles that are harmless to the ecosystem. As discussed by Chaudhry et al. (2020, p.53), the Selections advisory group is a fundamental piece of the organisation’s administration structure, liable for guaranteeing that the board has the essential abilities, experience, and variety to lead the association to progress.
The Assignments Council is responsible for finding contenders for the directorate and ensuring that the board is adjusted, skilled, and has the experience and variety important to lead the business. As suggested by Ashraf et al. (2021), the council is entrusted with taking a gander at the size, construction, and piece of the board and making any vital proposals to the board. Furthermore, the council is liable for directing the board’s progression arranging, guaranteeing that there is a reasonable arrangement for supplanting board individuals when their terms lapse or in case of startling opportunities.
The Chairman of the Board and two independent non-executive directors make up the Nominations Committee, which consists of three members. The following was the list of committee members as of the 2021 annual report:
Feng Qingfeng, Administrator of the board
Jean-Marc Storms, Free Non-Leader Chief
Dr. Sabine Maaßen, Free Non-Chief
The Designations Panel has Publish annual report by pointing out the below aspect during the detailing year.
The Designations Panel’s essential concentration during the detailing year was on guaranteeing that the board had the fundamental abilities and experience to really lead the organisation. The committee looked at the composition of the board and found areas where more expertise was needed (Al et al. 2020, p.14). Thus, the board suggested the arrangement of two new free non-chief chiefs with experience in auto designing and monetary administration.
The committee also focused on board and senior management succession planning. The committee looked over the company’s talent management and development programs to make sure that employees could easily move up into leadership roles when they needed to. In addition, the committee collaborated with the board to develop a strategy for filling open leadership positions effectively and smoothly.
Improvements for the Nominations Committee
One area in need of improvement is the requirement to increase board diversity. The board had only one female director as of the 2021 annual report, which is not in line with current best practices for board diversity. As discussed by Riahi et al. (2022), the council ought to attempt to distinguish competitors from assorted foundations, including orientation, identity, and ethnicity, to guarantee that the board mirrors the organisation’s partners’ variety.
Furthermore, the panel ought to consider integrating ordinary board appraisals to assess the board’s adequacy and recognize regions for development. Assessments of the board are a good way to find knowledge and experience gaps, evaluate the board’s decision-making process, and make sure the board is working well (Cohen et al. 2022). The Nominations Committee is in a position to guarantee that the board is well equipped to lead the company through any challenges that may arise by incorporating regular assessments.
Overall, Lotus’s governance structure relies heavily on the Nominations Committee. Its responsibility is to ensure that the board has the necessary diversity, experience, and skills to succeed (Ji, 2020, p.14). The primary duties of the committee are to oversee the board’s succession planning, find and select board candidates, and make sure the board is competent and balanced. While the advisory group has zeroed in on these areas, there is an opportunity to get better regarding expanding variety on the board and consolidating customary board evaluations.
5. Conclusion
After preparing the entire report it has been noted that Lotus has played an important role in the global car manufacturing industry as well as having a dominant position in UK car manufacturing. This report has pointed out key accounting and budgeting techniques which need to be considered by the company during different decision making such as whether to invest in a project or not. After that, the current report also elaborates key roles and responsibilities of the audit committee and ensures an effective “Corporate governance strategy”.
While coming to appreciate Lotus Car Limited’s significant investment in R&D, it needs to maintain its leadership position in the automotive industry in relation to the company’s financial position and performance. The company’s budget allocations reflect this investment, which has enabled it to continue innovating and introducing new models to the market.
Overall, this report also gained a better understanding of the significance of the company’s cost of capital in determining whether an investment proposal is viable from the discussions. When making investment decisions, it has also brought to light the significance of precise financial forecasting and risk assessment. The nominations committee’s crucial role in ensuring the effectiveness and integrity of the company’s governance processes has been revealed by examining its role and responsibilities. I now realise how important it is to have a diverse and independent committee oversee director selection and succession planning. Overall, the process of researching and writing this report has improved my comprehension of Lotus Car Limited’s financial management practices and challenges. This information will without a doubt be significant in my ongoing job and future vocation as a money proficient.
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Websites
Lotuscars, (2023): About Lotus car limited Available at: https://www.lotuscars.com/en-GB [Accessed on 9th May 2023]
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