In the new concern environment, such organisations are puting a concern scheme to accomplish competitory advantage for long tally. However, CEOs and executive managersare most likely take the duty to guarantee work flow in an organisation. Recently, research workers have shown that failure and success factors of any concern back to the incorrect determination doing sing the available fiscal resources or strategic technique in order to mensurate concern public presentation.
MID Contracting is one of the taking companies in building industry. It was established in 1991, the headquarter office based in Amman, Jordan. MID undertaking operates in many states in the in-between E and gulf part such Iraq and Qatar. It aims to make value for current and future client, and to have the international acknowledgment to accomplish its vision. MID Contracting has got ISO certification in the quality and environment direction.
The intent of this essay to place the major beginning of long term of finance used by MID Contractingcompany, and effort to measure the advantages and disadvantages clearly and accurately for each beginning. It will besides propose a suited alternate beginning could be used, with accurate appraisal advantages and disadvantages. Then it will measure the function of direction comptroller critically, and to discourse the beginning of information they have, and how efficaciously this information is used.
Finally, the essay will place and measure analytical technique used by MIDContracting in public presentation direction, and planning and commanding. It will besides discourse another analytical tool as suited option
2.0 beginning of finance:
Business has different types of sourcesto finance their operations. It has two options ; internal beginnings and external beginnings. In internal beginnings, managers and directors have the authorization to utilize inside beginnings of finance without take a permission from stockholder such as maintained net income. In contrast, external beginnings used to obtain more financess from outside concern, such as borrowing from a bank. They are divided into short term beginnings and long term beginning. Short term beginnings are those offer finance up to one twelvemonth. On the other manus, long term sourcesare those offer finance over one twelvemonth. ( Atrill & A ; McLaney, 2008 )
“ taking the funding mix of short and long term debt and equity that best meets the investing demand of a concern is a cardinal component of fiscal direction ” . ( Pike & A ; Neale, 2003 )
The bulk of undertaking companies would entree to long term beginnings of finance. These resources may supply a important liquidness to spread out into new markets, purchase new equipment or machinery.
This subdivision will place two primary long term beginnings for funding concern, and measure the possible advantages and disadvantages.
Term secured loan is one of the long term beginnings may be used by MID Contracting company. Harmonizing to Weston & A ; Brigham ( 1987 ) term loan defined as “ a contract under which a borrower agrees to do a series of involvement and rule payments on specific day of the months to the loaner ” . The contract determines the adulthood day of the month, normally ranged between 3 to 15 twelvemonth. The involvement rate of the loan could be fixed or variables. In short, it is loan negotiated on collateralized plus. The collateral could be land, program, and equipment.
Term loan has many advantages. Since it is a contract between two parties the borrower ( concern ) and the loaner ( usuallya bank ) , it would be managed rapidly. ( Atrill & A ; McLaney, 2008 ) Bank could supply hard currency quickly based on the concern demand. Sometimes concern may necessitate hard currency instantly to cover some outgos. Secured loans may enable concern to command their undertakings without any spouse. Otherwise, the loaner does non hold right to command over the concern procedure.
Another benefit generated from term loan that it is flexible. As consequence of rapid alterations in the economic clime, the involvement rate could be affected traveling up or down, the loaner and the borrower may sit together to negociate the footings under contract either mutable or correctable. Thecontract may let the concern to pull portion of the money, hence the involvement sum will be paid on the needed sum ( Atrill & A ; McLaney, 2008 ) .Loan refunds derived from net incomes or hard currency flow should be paid on monthly footing, it may assist the concern to program and monitorthe hard currency flows. Furthermore, from revenue enhancement position, fiscal statements shows that sum of involvement paid are revenue enhancement deductable, so that the values of revenue enhancements have been reduced.
On the other manus, secured term loan as long term beginning has disadvantages. However, secured loan may be much dearly-won on the concern which makes them to pay high involvement rate. The secured assets could be lost, whenthe concern could non beobligated on the loan refunds in the in agreement adulthood day of the month. Furthermore, neglecting in measuring the undertaking may take to necessitate money more than the concern demand. Furthermore, the involvement rate could be changed up, which the duty might increase more than expected.Business should supply the loaner relevant and dependable information about the concern. Lender uses the information to measure the hazard on return for the concern. They could necessitate more information about the undertaking to be certain that concern able to run into the demands. The concern may restrict dividend payment to the stockholders during the loan period.
Another long term beginning used by MID Contracting is gross revenues and leaseback. It is signifier of finance rental. Gross saless and leaseback can be defined as an understanding allow the concern to sell belongings ( e.g. equipment, edifice or other plus ) to fiscal establishment and give the right to the marketer torent it back for specific timeunder acontract of hire long-run and rate agreed upon by both parties ( Atrill & A ; McLaney, 2008 ) . Therefore, the marketer is committed to long-run rental, and continues to utilize the installation and obtain the hard currency to finance operations or expansion.The ownership of the plus transferred to the purchaser andensures a beginning of steady income. The contract normally enduring between 15-20 old ages, with renewable or repurchase option. The market value should be determined in the occupancy understanding. Normally the rent payments are fixed on monthly footing.
Sale and leaseback may assist the concern to let go of the capital of financess to reinvest in other activities to make high returns. It may enable concern to concentrate on pull offing the assets alternatively of ain it ( Atrill & A ; McLaney, 2008 ) . There are such possible benefits combined with utilizing sale-and-leaseback as long term beginning of finance.Business may derive hard currency instantly from sale the belongings, by change overing equity to hard currency. Furthermore, the recognition place and besides the balance sheet could be improved. Normally, rental payments have been fixed, so it would be revenue enhancement deducted.
On the other manus, it should take into history, sale and leaseback has disadvantages.Once the understanding is signed, the flexibleness of the belongings ownership could be lost to the purchaser, such as altering the employment of the belongings. Furthermore, the sale-leaseback frequently confine the marketer ‘s right to reassign the leasehold involvement, and even if possible, by and large it is more hard to extinguish a leasehold involvement than a fee-ownership involvement. Besides, the new landlord can get more benefits from any development or betterment to the belongings at the terminal of rental.
2.1 Alternative beginning of finance:
MID Contracting has been working within dynamic environment. They need to run into client demands and satisfaction to maintain turning in the building industry. Thus they need to increase finance capital which is needed to construct new undertakings and edifice to accomplish corporate scheme. This portion will propose an alternate beginning of finance could be used by MID Contracting company.
Chemical bonds are one of the long term beginnings of finance. Chemical bonds as debt instrument, it is long term contract between the concern ( issuer ) and the investor ( holder ) who purchased specific unites. The issuer should pay back the sum ( bond rule ) with involvement rate ( voucher payment ) to the holder in the adulthood day of the month. Sometime it is called loan notes. However, the monetary value of bond is determined by face value which is the sum paid to the holder at adulthood. Bonds period may last to 15 old ages or more. Furthermore, the bond holder can sell his/her units to another individual before making thematurity day of the month with higher involvement rate, particularly when the concern acquire net incomes and has a good repute. Bonds normally listed in the stock exchange market.
As many beginnings of finance, there are advantages and disadvantages of utilizing bonds. The holder can foretell the sum of involvement rate which will be received. When the concern issues bonds, it allows them to command ain assets and utilize the holder ‘s money alternatively of its ain. The holders do non hold any power or permission on concern ‘s ownership, and they can non claim to direction control.
However, bonds disadvantages should be taken into history. Publishing bonds are more clip devouring than others loans. Chemical bonds payments normally take long clip to received by the holder, so they are cognizant to diminish the hazard combined with bonds. Another drawback, the issuer may hold no dealingss with the holders as a bank, that bank can supervise the hard currency flow of the concern and reschedule the refunds under required.
3.0 The function of direction comptroller:
However, it would look that direction accounting plays a important function in the house. It has concerned about supplying needed information to the different degrees of direction to do determinations.
Management accounting could be defined as “ the internal business-building function of accounting and finance professionals who design, implement, and manage internal systems that support effectual determinations, and support, program, and command the organisation ‘s value-creating operations ” ( CIMA, 2011 ) . From the definition, we can see that direction comptroller has concerned with analyzing different type of information, in order to supply the direction a elaborate image on concern accomplishments and measure the options for prediction.
Management comptroller may seek information to internal users to do determination. They may concern about fiscal statements to measure the past public presentation and measure the concern place. On the other manus, non- fiscal information has been affected the direction comptroller to concentrate frontward instead than backward ( Hopper et al. 2007 ) . The incorporate information could assist direction comptroller to understand and increase cognition about the concern to back up direction action or determination.
It would look that concern has been working beyond barriers in a complex and advanced environment. Information engineering and viing globally have affected in the nature of information and the ability to capture all possible beginnings, in order to mensurate the organisation ‘s public presentation to prolong competitory advantage ( Tilly & A ; Charles, 2008 ) . Colin ( 2007 ) stated that altering in the concern environment, troughs need an accurate information to assist them in doing determination and monitoring procedure in the concern. However, Atrill ( 2008 ) believed that direction comptroller should be efficient and cod information about clients ‘ demands and satisfaction ( client oriented ) , every bit good as the rivals to maintain competitory advantage and transportation merchandises and/or services.
The function of direction accountant depends on the size of the concern, engineering, the direction construction ( Byrne & A ; Pierce, 2007 ) . Based on some surveies, Loo et Al. ( 2010 ) stated that direction accountant function as a “ bean counter ” has changed over old ages, to go “ concern advocators ” ( Loo et al. , 2010 ) or “ concern spouse ” ( Byrne & A ; Pierce, 2007 ) . In recent yearss, direction comptroller has been involved in the scheme preparation, operational research ( Byrne & A ; Pierce, 2007 ) .
Kaye ( 2001 ) stated that direction comptroller collect and record informations as scorekeeping, supply information to pay attending the direction about any menace or chance ( attending directing ) , and help to work out current or possible jobs ( job work outing ) . Weber and his co-workers ( 2011 ) stated that economic alterations may impact in the functions of direction comptroller to be more cognizant to minimise hazard and downsize costs ( Weber et Al, 2011 ) . Management comptroller should measure the available information to hike the net incomes and develop the efficiency of the concern. [ hypertext transfer protocol: //ezinearticles.com/ ? Management-Accounting, last accessed 11/03/2012 ] .
Decision devising, commanding, and be aftering functionshave been considered as the chief functions of direction comptroller ( Sizer, 1989 ) .Management comptroller could take function in determination devising. They may compare disbursals ( cost ) and grosss from different resources, to mensurate the net incomes or losingss from the operations. However, direction comptroller possibly concern about cost information, as an accounting linguistic communication. It could be used to explicate scheme and do appraisal of public presentation in the old twelvemonth. Furthermore, information can be used to do determination sing to merchandise or service provided by concern, for illustration pricing, merchandise mature, evaluate costs ( Kaplan & A ; Atkinson, 1998 ) . It may besides assist to put a long tally strategic to maintain growing and maximise the net incomes such as investing in new undertakings, enter new market, product/service invention. ( Drury, 2007 )
In the planning phase, direction comptroller can be involved to change over the concern aims and purposes to defined actions. Planning could be short term such as budgeting, which directors may utilize it to supervise and measure the public presentation. In the controlling phase, direction history would be able to fit between desire aims with existent public presentation. When the public presentation has measured, the feedback should be provided to the directors to measure the results, and concentrate on the efficiency/effectiveness for their concern ( Drury, 2007 ) .
Management comptroller may utilize all available information to run into director ‘s needs.Information studies may be required on day-to-day, monthly, or even quarterly footing. It should be relevancy to calculate events in the coming old ages, or to analyse the past public presentation. it should be besides accurate, that comptroller has to look into the information from errors. Furthermore, the studies should be clearly and apprehensible from the users ( Atrill & A ; McLaney, 2008 ) . Management comptroller could be cognizant to supply fiscal information such as cost, gross revenues, net income, utilizing currency footings ( Pound, Euro ) and operational ( non-financial ) information such as units, hours ( Jackson et al. , 2008 ) . Harmonizing to Byrne & A ; Pierce ( 2007 ) direction comptroller can be working alongside operational comptroller to measure the hazard and to be involved in the production and fabrication procedure.
There are Numberss of variables have been affected in the function of direction comptroller such advanced information engineering, and globalisation ( Hopper et al. , 2007 ) . Kaye ( 2001 ) revealed that direction comptroller might be encouraged to prosecute with new engineering to be efficient and effectual by utilizing all available resources to garner all possible information ( Kaye, 2001 ) . Tilly & A ; Charles ( 2008 ) argued that utilizing concern intelligence may let direction comptroller to entree and analyze valuable information to better doing determination and maintain one measure over rivals. It would look that prosecuting within advanced information engineering might minimise otiose clip and attempt to roll up and treat possible informations to show suited information. It may besides cut down the petition of external fiscal studies.
4.0 Analytic tools:
Every concern needs to run into client ‘s satisfaction and cognizant about the external environment to maintain growing and hike net incomes. Business identifies and establishes specific purposes and mission which reflect the ground of its being. However, concern demands to find strategic aims in order to accomplish its mission. Directors create a concern programs to guarantee that concern ends can be achieved in systematic attack. Developing programs may see uncertainness environment where concern can non expected Mission and strategic nonsubjective normally set for long term, top direction would necessitate a tool that can supply them a model to mensurate public presentation in short term. Business has some analytical tools and techniques can assist directors in determination devising, and to mensurate public presentation activities. Budgeting is one of these tools may be used MID Contracting company. Budget can be defined as “ a quantitative look of the planned money influxs and escapes that reveal whether the current operating or concern program will run into the organisation ‘s fiscal aims ” ( Atkinson et al. , 2007 ) . Master budget may dwell of two chief budgets ; runing budget which concerned about operations activities and disbursals such as gross revenues, production. Financing budget which considers hard currency resources and duties such bank adoption, hard currency flow, and beginnings of finance.
Atrill ( 2008 ) stated that puting budget for short term programs ( normally one twelvemonth ) aid concern to carry through strategic aims. Drury ( 2004 ) mentioned that budget has been involved in the long term program. Budgeting may see as a tool of the planning and commanding procedure. All degrees of managerial sections could be involved in puting their ain budget to make overall general budget. However, direction comptroller may play a important function in determination devising, by supplying dependable and relevant information which may be needed to directors for puting budget ( Atrill, 2008 ) . Budgeting has a several maps may assist directors and concern as following points:
A budget may enable troughs to place extroverted possible issues that may be discovered during be aftering procedure. It allows troughs to happen rational solutions to these jobs in early phase ( Atrill & A ; McLaney, 2008 ) . It besides provides directors to place indicants of hazards and chances that combined with activities.
The budget besides may help to organize activities among all concern ‘s sections and units budgets to better productiveness. For illustration, when gross revenues section sets out its budget, it should take the consideration the fiscal resources which may be explained in the finance section budget ( Atrill & A ; McLaney, 2008 ) .
Involving staff in puting budget may assist to actuate troughs and other employees to run into concern aims, and better work public presentation. Business might utilize fillip or inducement methods to increase the commitment toward concern aims.
Furthermore, budgets can be used as control tool. Manager may utilize budget to measure the public presentation by comparing existent consequences with coveted results. In this phase, direction by exclusion used by top direction to analyse the activities and consequences that have non met the planned public presentation. It may enable lower degree directors to use self-monitor on their plants and how they have achieved. They should aware what expected to make and what they have done ( Atrill & A ; McLaney, 2008 ) .
A budget can let directors to send on believing to apportion resources and capablenesss to increase the efficiency, productiveness, sustain competitory. For illustration, when directors want to spread out their operation by opening new subdivisions, they should take into history the available resources and the profitableness ( Putra, 2008 ) .
Drury ( 2004 ) stated that budget enables directors to measure the public presentation in the old twelvemonth. Comparing the planned and existent consequences can help to gauge if they fit with the budget. Measuring public presentation may impact the behaviour and the ability of the directors. Joshi ( 2003 ) stated that director measure the budget on monthly or quarterly footing.
Budget can heighten communicating in the organisation. Directors can roll up and portion information with other sections which is indispensable to put budget.
On the other manus, director may confront some jobs when puting budget program:
It can uncover a challenge between directors that may cut down the efficiency. Directors may fault each other when the section has failed to accomplish the expected consequence. In this instance, motive and coordination may be reduced between sections.
When directors set the budget they focus on fiscal consequences. Quality and client services that provided by the concern have non been considered in the budget plan.It may see subjective information.
In add-on, budget contrivers would be given to gauge that disbursals ( escapes ) exceed the grosss ( influxs ) .
Another disadvantage, direction might put easy marks and ends to accomplish which lead to diminish the public presentation of the staff. Furthermore, staff may experience emphasis or unconfident when the budgeting ends have been complex or difficult.
Budget may no longer see as a strategic program. Directors are more likely set budget for one twelvemonth in front.
4.1 The balance scorecard:
However, MID Contracting works in a competitory environment. Budget may be considered as fiscal measuring tool about past period and cost decrease. It should utilize strategic analytical tools in order to accomplish its strategic aims in long term. It would be better to alter budget with a direction system that can guarantee step fiscal ( expenses/revenues ) and non-financial ( TQM, JIT ) public presentation.
The balanced scorecard could be an alternate public presentation attack that MID Contracting likely can utilize. In 1992 the balanced scorecard was introduced by Drs. Kaplan and Norton to mensurate public presentation of the organisation. The balanced scorecard can be defined as “ a strategic planning and direction system that is used extensively in concern and industry, authorities and non-profit-making organisations worldwide to aline concern activities to the vision and scheme of the organisation, better internal and external communications, and monitor organisation public presentation against strategic ends ” ( Sharma, 2009 ) . Using scorecard enables directors to mensurate the concern public presentation and how the employee add value to the clients.
On one manus, the balanced scorecard can be an incorporate system which mixes between fiscal measurings in past and future accomplishments ( future-oriented ) . On the other manus, it has non forgotten to mensurate operational objectives.It may give the organisation chance to use its strategic aims and vision linked with public presentation measuring. Organization, nevertheless, considers four chief positions to sketch public presentation ; fiscal position, client position, internal concern position, and growing and larning position. ( see appendix 1 ) .
The balanced scorecard provides acomprehensive position which enable direction to derive different information about concern. Kaplan and Norton ( 2001 ) believed that organisation has been failed to increase the profitableness and merchandise consciousness, because it has focused on touchable assets with extinguishing intangible assets that would add value. As it is the nucleus component in balanced scorecard, direction and employees should be involved in explicating and implementing scheme, and must understand where organisation is traveling. Using balanced scorecard may assist director to mensurate the value added to client service, stockholders, employees for long term. Scorecard would be considered as communicating and larning tool instead than commanding ( Kaplan & A ; Norton, 1996 ) . It may besides promote direction to better concern procedure to present client demands in targeted market and achieve fiscal mark.
In decision, balance scorecard can be an ideal technique for MID Contracting to mensurate public presentation as strategic tool alternatively of budgeting. As the company operates in a dynamic and competitory environment, balance scorecard may assist to motive employees to be efficient and maintain turning to better the productiveness, advanced, and increase fiscal nonsubjective which linked with corporate scheme and vision.
It can be seen that directors have duty to measure concern picks and market demands in order to do the best determinations in funding and accounting. As discussed above, accountant directors function has changed over old ages from score-keeping to job work outing which enable them to affect in determination devising, planning, and commanding. directors need to analyze beginning of finance which can be used, measure the hazard and return, and take into history the overall history. In order to prolong competitory among rivals, concern demand to utilize short and long term analytical tool for public presentation measuring.
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Balance scorecard methodological analysis ( Appendex.1 )