It has been an eventful week, in which budget sessions at the office were on and ratio analysis required as envisaged in Corporate Financial Accounting. I am still learning to interpret financial ratios; this was a real-time, hands-on experience. The budget sessions are usually by each Division and the Finance Unit was called upon to present and defend its budget. The defence was a straightforward task, what was demanding was the application of financial ratios introduced for the first time this year. The ratios measured performance versus budget of the previous year, and suitable explanations of variances had to be provided. For the current year’s budget, the ratios measured profitability to equity, profitability to assets available, and the current ratio where applicable.
The Corporate Reporting Division presented the company’s budget for the year, having summed up the total budgets of the various units. This was an interesting session as all units appreciated where they fit into the overall picture of the company’s budget. The Corporate Reporting Division presented the Statement of Profit and Loss (SOPL), the State of Financial Position (SOFP), the Statement of Cash Flow and the Statement of Owner’s Equity (SOE). The financial ratios were then computed as applicable and compared to the available ratios of the previous year. A global comparison was also presented by comparing key profitability and liquidity ratios to the industry average. The results of some of the financial ratios were of much significance or concern and were appropriately red-flagged for further analysis.
The Target Canada experience was part of the week in Analysis of Business Problems (ABP). Target is a departmental store that has its parent company in the United States of America. It started in 1902 as a merchandise company. And later expanded to a departmental store with outlets all over the USA. Its main rival is Walmart, and over time, Target planned to extend to Canada. Its foray into Canada was anticipated by consumers and competition alike, and by 2014, Target Canada had 133 stores and employed over 17,600 people, all in the space of two years. Unfortunately, the 2014 State of Financial Position or balance sheet of Target Canada showed a negative equity position as the accumulated loss had almost eroded the paid-up capital of the Company. The decision was then whether Target Canada should continue to operate or be closed down in the face of its operational difficulties.
This is a case study in summary and requires an essay on a decision scenario. A decision scenario entails five elements. First, you are to state the decision that needs to be made and any options. This requires that you have an understanding of the case and can draw out the options available in the case. Secondly, you must recommend a decision option, i.e. present a position statement. This is at the beginning of the essay; you make your choice known to the reader and then go on to defend your choice. Thereafter, you state the decision criteria and prove the recommended decision. Finally, you present an action plan. The process of the essay remains a work in progress for me, which I hope to conclude in the next week.
Modeleola Jegede
#MEMBA 12
