Assignment on Strategic financial management

Introduction

Strategic financial management represents study of finance with a long lasting view considering the strategic goals of the business. Financial control is these days progressively generally known as "Strategic Financial Management" so as to give it an improved structure of referrals.

A company’s stakeholders take some necessary steps to improve their business position.  There may be many kind of stakeholder who leads the business. For this assessment I have chosen as a company named “Mc Donald’s”.

 

­Task-1

Various stakeholders of Mc Donald’s Company limited

·         Shareholders

·         Suppliers

·         Employees

·         Customers

·         Government Regulations

·         Creditors

·         Trade unions

·         Communities

Stakeholder’s interest in the company

Shareholder: Shareholder’s main interest (concern) is to gain dividend timely, increasing price of share. From the annual report of Mc Donald’s Company we can see that Earnings per common share–basic (year 2013) $ 5.59 and (year 2012) $ 5.41. Dividends declared per common share (year 2013) $ 3.12 (year 2012) $ 2.87

On the other hand shareholder wants to lead the business through buying minimum number of shares.

Suppliers: Suppliers interest in an organization is to purchase in long term, payment would be made timely, growth of purchasing etc.

Employees: Employees are the builder of an organization; if they do not work effectively then the business will not be able to make good profit as well as fail to create a good position in market. Employees interests are

·         job security

·         better salary and wages

·         job satisfaction

·         motivation

Customers: Customers are very important for existing of a company their interests are;

·         reliable quality

·         value for money

·         product availability

·         customer service

Communities: Communities are extensively involved with the businesses like McDonalds as they are interested when stores are planning to build near them they are also concerned in the jobs that the store can offer.

·         environment

·         local jobs

·         local impact

Creditors: Creditors lend money or purchase debentures to receive interest over a period of time. As per annual report liabilities was Long-term debt (2013) $14,129.8

·         to receive interest

·         to receive principal just time

Stakeholder’s Interest Management

1.      Supervisors should recognize and definitely observe the issues of all legitimate stakeholders, and should take their passions appropriately into consideration in decision-making and functions.

2.      Supervisors should pay attention to and freely connect with stakeholders about their specific issues and efforts, and about the risk that they believe because of their participation with the organization.

3.      Supervisors should follow procedures and ways of actions that are sensitive to the issues and abilities of each stakeholder constituency.

4.      Managers should be familiar with the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a pale distribution of the benefits and burdens of corporate activity among them, taking into account their respective risks and vulnerabilities.

5.      Managers should work cooperatively with other companies, both public and private, to guarantee that risks and problems coming up from professional activities are decreased and, where they cannot be prevented, effectively compensated

6.       Managers should acknowledge the potential conflicts between (a) their own role as corporate stakeholders, and (b) their legal and moral responsibilities for the interests of stakeholders, and should take in hand such conflicts through open communication, appropriate reporting and incentive systems and, where necessary, third party review.

Stakeholder’s main interest power and influence

Stakeholders	Main interests	Power and influence
Shareholder	·         profit growth ·          share price growth ·          Dividends	·         Election of directors
Banks & other Lenders	·         Interests and principal to be repaid ·          maintaining credit rating	·         Can enforce loan covenants ·         Can withdraw banking facilities
Directors & Managers	·         Salary ·         Share options ·         job satisfaction and ·         status	·         Decision making ·         have detailed information
Employees	·         salaries and wages ·         motivation ·         job security ·         job satisfaction ·         motivation	·         stuff turnover ·         industrial action ·         Trade Union ·         service quality
Suppliers	·         long term contracts ·         prompt payment ·         growth of purchasing	·         price ·         quality ·         trade credit facility ·         product availability
Customers	·         reliable quality ·         value for money ·         customer service ·         product availability	·         word of mouth recommendation ·         tendency of switching to other product
Community	·         environment ·         local jobs ·         local impact	·         indirect via local planning ·         opinion leaders
Government	·         operate legally ·         Tax receipts ·         jobs	·         regulation ·         subsides ·         Taxation ·         planning

Task-2

Business Current Position

Customers The Company’s business is not dependent upon either a single customer or small group of customers.

Backlog Company-operated restaurants have no backlog orders.

Competition: McDonald’s restaurants competition with globally, national, regional and regional providers of foods. The Company performs on the reasons for price, convenience, support, selection wide range and product quality in a very fragmented worldwide cafe industry. Control also on event requirements McDonald’s against the entire cafe industry, such as the IEO area described above and all other full-service cafes. . McDonald’s System wide cafe business included 0.2% of those sites and about 4% of the sales.

Research and development The Organization functions research and development functions in the U.S., Europe and Asia. While research and development activities are important to the Company’s business, these costs are not content. Individual suppliers also execute research activities that advantage the Company, its franchisees and suppliers (collectively usually known as the "System").

Environmental matters Enhanced focus by U.S. and worldwide govt authorities on environmental problems is likely to cause to new govt tasks, particularly in the place of climatic change. While we cannot calculate the precise features of these tasks, they predict that they may impact their business both directly and eventually. Although the impact would likely vary by world place and/or industry, believe that implementing of new guidelines may improve expenses, such as for the Company, its franchisees and suppliers. Also, there is a possibility that govt tasks, or real or identified results of changes in environment designs or environment, could have a immediate impact on the features of our cafes or the features of their suppliers in ways which they cannot calculate currently. The Company timepieces developments relevant to environmental problems and programs to respond to govt tasks in an appropriate way.  At now, the Company has already began to execute its own tasks with regards to servicing of the environment, such as the performance of more energy efficient devices and control of energy use, in many of its industry segments.

Number of employees The Company’s number of employees worldwide, including Company-operated restaurant employees, was approximately 440,000 as of year-end 2013.

Planning and Strategy taken by Mc Donald’s

the innovation of franchising and the growth of some of the most innovative promotion and marketing strategies, McDonald’s is one of the world’s most well-known, useful manufacturers having a major discuss in the worldwide labeled, quick support cafe section of the casual dining-out industry in almost every nation in which they do business. As a innovator in the junk meals industry, McDonald’s is often focused. Some of the methods McDonald’s manages the strikes of the press and competitors is by developing a promotion mix to emphasize the beneficial effects the company. McDonald’s must keep the ideal characteristics of its promotion initiatives to remain on top and offer what clients want.

Marketing mix Marketing mix must focus on the product, costs, promotion, and position of product to help make it effective. Marketing techniques must function client alignment, feedback, and availability in the battle to the top of the industry. McDonald’s is no different. One can identify that McDonald’s primary focus on audience is children age groups 3-11 and their mother and father. McDonald’s recognized that the mother or father was making the buying decision, most likely based on price.

Product Strategies: McDonald’s promotion techniques should be considered traditionally to be able to see the bigger image of the firm’s achievements. There have been so many techniques since the beginning of the company that it is challenging to consideration for them all, the two most unforgettable are the growth of the “Golden Arches” and “Ronald McDonald”. These two symbols have given customers a psychological picture of what to look for when they want top quality meals for a low price quick. The company totally changed the junk meals industry and placed itself as the industry innovator with low-priced, top quality meals and provided an interesting environment for the children. These things were what that the industry desired at the time and the company responded to in scoops.

Placement Strategies: McDonald’s concentrates on shop positioning and are always looking for the best places. This technique designed some weak point in the last 10 decades because it seemed that too many shops were put in some places, cannibalizing revenue from the other McDonald’s. The organization has also created comfort a concentrate, not only through how quick it provides clients, but also in the place of its sites. Free standing dining places are placed so that you are never more than a few moments away by feet in the town or by car in the suburban places. Moreover, McDonald’s is tucking dining places into educational institutions, shops, and more.

Pricing Strategies: The customer’s understanding of value is an essential determinant of the cost billed. Clients attract their own psychological image of what a product is worth. A product is more than a physical product; it also has emotional descriptions for the client. The risk of using low cost as a promotion is that the client may feel that quality is being affected. It is essential when determining on cost to be completely aware of the product and its reliability. A further impact of decrease is that opponents coordinate prices leading to no extra requirement. This means the benefit edge has been decreased without improving sales.

Promotion Strategies: McDonald’s knows that some clients go to its shops to take a fast crack from their day’s actions and not because McDonald’s created the meals ten a few moments quicker than their opponents could. Therefore, McDonald’s promotion professionals then put together the term, “Have you had your break today?” They continued to develop this idea with “You deserve a break today,” and now are in the “I’m Lovin’ It!” mantra. “I’m Lovin’ It!” doesn’t seem to have as much punch as the earlier catch phrase, which still seems to be the favorite

Another marketing technique McDonald’s uses is the large financial commitment in support. This is also a main part of the picture developing procedure. Sponsorship of the 1998 football World Cup, the Leading Team and the Western Tournament improves attention of McDonald’s product. However, McDonald’s still follows Ray Kroc’s group values nowadays, assisting the Clean England Team and the Foundation Believe in, as well as neighborhood actions. McDonald’s has become a known group associate with Ronald McDonald Homes across the country for the use of family members whose kids are put in the hospital and getting therapy far from home. This company has designed an picture of collaboration and group financial commitment with these and other types of philanthropic actions.

CURRENT FINANCIAL POSITION OF McDonald’s

In 2013, money from functions was $7.1 billion dollars. Our substantial income, strong credit rating score and ongoing access to credit rating provided us flexibility to fund investment expenses as well as comeback money to investors. Capital expenses of approximately $2.8 billion dollars were spent in our business, of which more than half was devoted to new restaurant opportunities and the remainder was reinvested in our current dining places. Across the System, 1,438 dining places were started out and over 1,500 current locations were reimaged. We ongoing to come back all free income (cash from functions less investment expenditures) to investors, and in 2013 came back $4.9 billion dollars to investors made up of $3.1 billion dollars in benefits and $1.8 billion dollars in share repurchases.

Results from the year:

 Global similar sales improved 0.2% and similar visitor matters dropped 1.9%. Combined earnings improved 2% (2% in continuous currencies). Combined operating income improved 2% (3% in continuous currencies). Watered down earnings per discuss was $5.55, an increase of 4% (4% in continuous currencies). Money provided by functions was $7.1 billion dollars. One-year ROIIC was 11.4% and three-year ROIIC was 20.2% for the period ended Dec 31, 2013. The Organization improved the every quarter cash results per discuss 5% to $0.81 for the fourth quarter, equivalent to an yearly results of $3.24 per discuss. The Organization came back $4.9 billion dollars to investors through benefits and discuss repurchases.

Outlook for 2014:

 They are aimed on providing great-tasting, high-quality, affordable food and drinks and an remarkable experience for our customers. By utilizing our aggressive advantages, we are well-positioned to engage in the long-term possibilities that can be found in the over $1 billion IEO section. We do not expect important changes in market characteristics in 2014 given moderate growth forecasts for the IEO section. We will stay targeted on issues within our control, with the client as our first concern. We plan to enhance our connection with the client through better cafe efficiency and by further utilizing customer ideas in our projects to improve current projects for greater importance and wider customer achieve. We stay dedicated to changing keep speed with changing client needs and making an investment today to meet future demand. In addition, we are showing concern for our near-term projects on enhancing efficiency in key opportunity marketplaces that are important members to combined results.

U.S.

In 2014, the U.S. will make improvements designed to restore strength, such as offering greater client importance and better cafe performance. Our 2014 selection techniques better balance budget, primary items, new options and limited-time offers. We will also modify the speed of product insights for each to improve cafe functions and marketing performance in order to provide a better client encounter. These projects are accompanied by a regular concentrate on primary stocks, such as morning meal. We will improve the morning meal encounter by focusing coffee through high-quality McCafé items combined with delightful foods - both current and new. Strong new taste additions will be presented to build upon our primary and lay the foundation for future enhancements. We plan to open about 250 new dining places and to continue our reimaging program by upgrading roughly 300 current dining places in 2014, a little bit more slowly speed as we concentrate on other kitchen investment techniques.

Europe

In Europe, we way to enhance the choice through value choice developments, top quality choice developments and limited-time provides, and will continue to succeed the morning hours food daypart by using our highly effective platform in coffee. Moreover, following the U.K.’s effective rollout of McCafé drinks we estimate about 4,500 cafes in Europe will have the blended-ice system by the end of 2014. To upgrade the way we connect with our customers, we way to make use of the use of technology, such as self-order kiosks and mobile and web buying. We will focus on increasing accessibility by continuous to enhance work hours, enhancing drive-thrus, and increasing everyday value techniques. We way to open over 300 new cafes and reimage approximately 400 present cafes in 2014.

In 2013 Sales by Company-operated restaurants $18,875 and Revenues from franchised restaurants $9,231

Net income $ 5,586

Capital expenditures invested in major markets, excluding Japan, represented over 70% of the total in 2013, 2012 and 2011. Japan is accounted for under the equity method, and accordingly its capital expenditures are not included in consolidated amounts. In 2013 total capital expenditures was $ 2,825

Task-3

1.      Calculation of revenue:

USA	France	Switzerland
(USD × FOREX rate of URO) Year-1= 700 ×2.10=£ 1470 Year-2= 700 ×2.20= £1540 Year-3= 700 ×2.30= £1610 Year-4= 700 ×2.10=£1470 Year-5= 700 ×2.25=£1575	(URO × FOREX rate of URO)   Year-1= 450×1.80=£810   Year-2=450×1.90=£855   Year-3=450×2.00=£900   Year-4=450×2.10=£945   Year-5=450×1.95=£878	(Swiss Francs× FOREX rate of URO) Year-1=3800×10=£38000  Year-2=3800×12=£45600  Year-3=3800×14=£53200  Year-4=3800×12=£45600  Year-5=3800×13=£49400

2.      Calculation of Depreciation

Depreciation =

                      =

                      =£24

3.      Calculation of cost

For USA = Running expense + additional approval fee

               = £ (210+22)

               =£232

For France = Running expense + additional approval fee +Royalty fee

                  = £ (190+25+25)

                 =£240

For Switzerland = Running expense + additional license fee + inspection cost

                          = £ (200+30+70)

                          =£ 300 (Every 3^rd year)

                          = Running expense + additional license fee

                          =£ (200+30)

                          =£ 230

For USA

(All amount in £)

1	2	3	4	5=3+4	6=2- 5	7	8=6×7
Year	Revenue	Cost	Depreciation	Total cost	profit	DF@10%	PV
1	1470	232	24	256	1214	0.909	1103.526
2	1540	232	24	256	1284	0.826	1060.584
3	1610	232	24	256	1354	0.751	1016.854
4	1470	232	24	256	1214	0.683	829.162
5	1575	232	24	256	1319	0.621	819.099
Total					6385		4829.225

For France

(All amount in £)

1	2	3	4	5=3+4	6=2- 5	7	8=6×7
Year	Revenue	Cost	Depreciation	Total cost	profit	DF @10%	PV
1	810	240	24	264	546	0.909	496.314
2	855	240	24	264	591	0.826	488.166
3	900	240	24	264	636	0.751	477.636
4	945	240	24	264	681	0.683	465.123
5	478	240	24	264	214	0.621	132.894
Total					2668		2060.133

For Switzerland

(All amount in £)

1	2	3	4	5=3+4	6=2- 5	7	8=6×7
Year	Revenue	Cost	Depreciation	Total cost	profit	DF@10%	PV
1	38000	230	24	254	37746	0.909	34311.11
2	45600	230	24	254	45346	0.826	37455.8
3	53200	300	24	324	52876	0.751	39709.88
4	45600	230	24	254	45346	0.683	30971.32
5	49400	230	24	254	49146	0.621	30519.67
Total					230460		172967.8

Calculation of pay-back period (PBP)

For USA

year	cash flow	cumulative cash flow
0	(340)	(340)
1	1470	1,130
2	1540	2,670
3	1610	4,280
4	1470	5,750
5	1575	7,325

PBP = Year +  

        =1+  

        = 1 + 0.73

       = 1.73 year

For France

year	cash flow	cumulative cash flow
0	(340)	(340)
1	810	470
2	855	1,325
3	900	2,225
4	945	3,170
5	478	3,648

PBP = Year +  

         = 1 +

         = 1.55 years

For Switzerland

year	cash flow	cumulative cash flow
0	(340)	(340)
1	38000	37,660
2	45600	83,260
3	53200	136,460
4	45600	182,060
5	49400	231,460

PBP = Year +

        = 1 +

        = 1.83 years        

From calculation we can find the pay back periods are as follows;

USA = 1.73 years

France = 1.55 years

Switzerland = 1.83 years

So, the payback period of France is shorter than any other.

Average Rate of Return (ARR)

ARR = (Total profit ÷ No. of year) ÷ Average investment

Average investment = investment ÷ 2

                                 = 340 ÷2

                                 = 170

ARR for USA = (6385 ÷5) ÷ 170

               = 1277 ÷170

               =7.51%

ARR for France = (2668 ÷ 5) ÷ 170

                  = 533.6 ÷170

                  = 3.14%

ARR for Switzerland = (230460 ÷ 5) ÷ 170

                          = 46092 ÷ 170

                         = 271.13%

From the ARR calculation we can say Switzerland is preferable.

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·         John Argenti (1968): “Corporate Planning”   

·         Max Mckeown (2012), “The Strategy Book”

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