Analyis of financial objectives financials projecttions and investment decisions



These objectives are designed and reviewed at fixed intervals, discrepancies are identified and finally based on reviews suggestions are employed to meet the desired gaps. In same trend management of the company in the year end 2012 called up board meeting and planned company objectives for the next three years. This report is based on the review of the planned objectives. For the purpose, this report provided critical analysis of the set forth objectives along with its comparison with competitors’ objectives. Section II of the report has developed financials (comprising of income statement and balance sheet) for the next three years i.e. 2013- 2015 and has made an attempt to review level of alignment between objectives and financials. Section III of the report provides review of investment decision that company intends to make pertaining to cost of capital and its impact on shareholders wealth. Lastly, the report provides concluding remarks based on the overall review. 1- OBJECTIVE EVALUATION In the board meeting held in the ending of the current year, management has highlighted corporate objectives and future direction for the next three years. These objectives have been set based on the financial position for the current year 2012. Financial objectives for the next three years are as follows: 1- To maintain the profit margin around 24% 2- To ensure the current strong financial position is maintained 3- To satisfy shareholders by maintaining the dividend payout ratio of 50% ANALYSIS OF THE FINANCIAL OBJECTIVES Apparently the objectives appear to be suitable for the overall business. However, since the case do not provide detailed financial information, therefore, it is difficult to accept these objectives in alignment with the overall objectives across departments. For instance, maintaining profit margin at 24% refers that Aztec Catering has either plans to maintain the strong control over cost or would increase its prices to maintain to meet the objective or increase sales. Both options have their implications mainly for following factors: 1- Level of competition 2- Inflation 3- Only in case if all other things remain same Keeping under consideration, Aztec Catering is competing with Compass group which comparatively bigger business concern. Therefore, increasing price would divert its customer to the competitor and there is ample chance for Aztec Catering to lose customer base. On contrary, reducing overall cost or developing stronger control over cost items is the other option. As stated in the given option, objective of Compass group is to provide the best services to its customers refers that Compass group would provide more value added offerings to its customer. Providing value added products would increase cost while being bigger concern it can easily attain the benefit of economies while Aztec Catering in order to remain competitive has to increase its offerings as well that resultantly would rise in cost. Hence, there are all chances that cost would increase in a greater proportion than sales. Therefore, cost control appears somewhat difficult option. Considering the third option of increasing sales also require increased marketing and other activities that would also increase cost. Therefore, it with the given information it is difficult to infer the ways Aztec Catering would maintain the profit margin of 24%. The given information has also not accounted the other factors that increasing cost. For instance, for the target that have been set the given informa