Do Financial Management Decisions Influence Firm Value? Essay

fiscal management decision-making consists of techniques, tools and social functions that a bon ton or respective(prenominal) uses to gather ideas, evaluate options and select the outdo outcomes, depending on internal and external factors. A plastereds leadership may ask department heads, segment principals and accounting managers to provide input in financial decision-making processes. There are three main financial management decisions which are* Capital budgetingCapital budgeting is a required managerial tool. According Brunel, R. (2009) peerless duty of a financial manager is to choose investments with satisfactory cash flows and rates of return. Therefore, a financial manager must be able to finalise whether an investment is worth undertaking and be able to choose intelligently between two or more alternatives. To do this, a sound procedure to evaluate, compare, and select projects is needed.* Capital structureThe ModiglianiMiller theorem states that, in the absence of t axes, bankruptcy costs, and asymmetric information, and in an efficient commercialise, a companys value is untouched by how it is financed, regardless of whetherthe companys cap consists of equities or debt, or a combination of these, or what the dividend policy is. The theorem is also known as the capital structure principle. There are two main questions when looking at the capital structure 1) How much money do we need to borrow to purchase this long asset? 2) What are the least expensive sources of funds for the firm?* Working capital managementThe goal of functional capital management is to stop that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt and upcoming operational expenses. Any decision undertaken by the firm in one area has its impact on other areas as well. For example acceptance of an investment proposal by a firm affects its capital structure and capital budgeting decision as well. So these decision are inter-related and should be taken jointly so that financial decision is optimal. every last(predicate) the financial decision have ultimately to achieve the firms goal of maximisation of shareholders wealth.Burberry, one of the famous designer brands in the world was started by a 21 year old drapers apprentice, Thomas Burberry. This whole started with small outfitters shop in Basingstoke, Hampshire, England (The Telegraph 2011). Burberry gained popularity during the First World Was when it won the contract to supply trench coats to the British army. Later on, Burberry was also won by Humphrey Bogart in Casablanca, Audrey Hepburn in Breakfast at Tiffany and Peter Sellers in the tap Panther. Burberrys main mission was to sell Britishness to the world (Friedman 2011).* 2008/2009/2010 Financial reportsThe Annual Report of Burberry for the year of 2008, states that revenue of of 995m, up 18% on an underlying basis, 17 % reported. Exchange rates reduce revenue by 12m. Fin al dividend of 8.65p per share giving 12.0p for the full year, as the payout ratio is moved progressively towards 40%. The undermentioned graph shows the Total Shareholder Return (TSR) for Burberry Group plc compared to the companies in the FTSE 100 world power assuming 100 was invested on 31 March 2003. The FTSE 100 Index has been selected because Burberrys market capitalisation is close to that of companies at the lower end of the FTSE 100 Index.For the year of 2009 Burberry had a 15 per cent rise in sales to 380m. The company said retail sales were up 17 per cent with strong comparable storage sales growth, greater full-price sell through of the pass collection as significantly lower stock-taking going into the last quarter. Burberrys wholesale revenue was up 11per cent, driven by more popular deliveries and full year dividend maintained at 12p per share. Angela Ahrendts, Chief Executive Officer, commented 2008/09 was one of the most challenging years the luxury sector has ever faced, especially in the second half. Against this background, Burberry grew revenue to 1.2bn. The results for the 2010 are that the total revenue up 24% underlying (up 30% reported), Retail sales up 16% underlying (up 21% reported).Wholesale revenue up 46% underlying (up 51% reported) in smallest quarter. After reading and analyzing the financial reports for the past three years, we found three working capital oriented decision made 1. Investments in market expansion in Middle East (UAE), China and Japan- The achievement of Burberry to enter the China market was the main highlight in the period of 2010/11. Japan offers challenging consumer environment not only to Burberry Group PLC but to many other companies decided to be successful in this market. With the opportunity to make improvements to its leading license agreement, Burberry lifted its long-term tactical options in Japan. Through the effort executing the core go up Burberry have reached strong financial results. Tot al revenue grew 7% to 1.3 bn.Retail performed well, increasing revenue 19% on a 7% comparable store sales gain. Licensing change magnitude 18% with a decline in Japan offset by growth in world-wide product licenses and favorable re-sentencing rate movements.(2009/10) The achievement of Burberry to enter the China market was the main highlight in the period of 2010/11. Burberry have obtained 50 stores in 30 towns for about 65 m. Sales in emerging markets were up 45per cent in the past six months .The entering on the China market brought to the company opportunity to develop in the fastest growing luxury market in the world. Since the acquisition ten new stores were opened. Retailing and inventory initiatives have effectively driven cleverness in open stores, with comparative store sales up about 30 % in the second half of the year.2. Investments for improvement of the overall outlook of the company renovating the stores and employing online shopping system-Emphasize profitability over revenue growth. In 2009/10, the significantly slowed buyer environment pressured gross margin and expense structure with a leveraged admonitory effect on income. To capitalize on gross margin, trade teams continued to reduce range sizes across category. This resulted in more focused assortments leading to enhance sourcing efficiencies, more consistent in-store presentation and improved sell-through rates. The teams also revised mark-down policies to capitalize on the less seasonal elements of the collections. Retail/wholesale gross margin increased from 52.1% in 2008/09 to 59.7% in 2009/10. Pre-tax profits were up by 50 per cent to 118m and total revenues increased by 21pc, in the six months to the end of September.This led to advertise of Burberrys dividend by 43pc to 5p. Angela Ahrendts have brought to the company ascend of share price more than 130p. Leveraging the instrument in systems and planning expertise, the Group enhanced inventory management in the year. Inventory levels were cut down 36% year over year. The status of the Burberry Group as a leader in the digital world was further improved with the autumn 2010 show, which in addition to live streaming over the internet, was screen in 3D in five cities all over the globe and let customers to acquire and look through runaway items straight for accelerated delivery- both firsts in the luxury segment. The rollout of the new Burberry.com web varlet launched in the fourth quarter of 2010/11. The web page was available live in six languages and transactional across 45 countries all over the world by the year end.And3. Strict employee payment schemes, bonuses for big sale quantities.Elements of remunerationIn economics and finance decisions the principal-agent problem treats the difficulties that arise under conditions when an employee is hired, and there is a contravention of interest and moral hazard. One of the decisions that Burberry shareholders take to overall this problem is with bonus shame s. Remuneration is planned such that for executive directors and other senior managers, performance-related elements represent the bulk of total possible remuneration. The Group gears its remuneration policy withproviding of the following elementsBase salaryThe Group intentions to provide salaries which are competitive with those of comparable roles at global companies of a related size and global reach within the luxury goods sector. These companies are representative of Burberrys participants for executive talent. When bearing in mind the salary, the room considers not only competitive firms decision, but also what the contribution to the business is and the overall performance through the year.Annual bonusEach year the menu make bonus targeting by reference to internal and external expectations Bonuses are currently based on effectiveness and presentation against Group strategic and individual points of overall contribution to the business. The Committee have confidence in link ing incentives to profitability helps to reinforce the Groups strategy and long-term growth purposes. Targets are severely regulated by Kepler using benchmarks that contains broker earnings estimates for Burberry and its competitors, targets for productivity consistent with median/ pep pill quartile shareholder returns, latest plans for the then current year, budget, strategic plan, long-term financial goals, etc. Actual bonus awards are subject to the discretion of the Board.Service agreementsAngela Ahrendts relocated from the US to the UK and commenced her employment with Burberry as an executive director on 9 January 2006 Under a service contract dated 10 October 2005. She was appointed Chief Executive Officer on 1 July 2006. Now she is the chief executive of Burberry and she led the best performing company in the FTSE 100 index for year 2009.Burberry paid Ahrendts a total of 3.2m, positioning her between the upper middle of the FTSE 100 index for total remuneration.Her pay pack et contained a base salary of 910,000 and a maximum cash bonus of 200 % of that salary, unneurotic with other allowances Burberry made Angela Ahrendts a shareholder by motivating her to make an even better performance. One of the examples of her brilliant decisions was that Ahrendts quickly recognise that the franchise instance would in the end disaster the companys hopes ofrestoring and maintaining its premium rating, and has spent much of her tenancy buying back the licenses, often taking a liberal hit to the lowest line in the short term as a result.Bibliography1. Burberry Annual Report 2007/2008 , Online from http//smartpdf.blacksunplc.com/burberry2007-08ara/Burberry_2007-08_AnnualReport.pdf Accessed 02 December 2011 2. 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