Financialisation And Conceptual Framework – A Critical Evaluation

Critical evaluation of the company performance

Discuss sbout the Financialisation and Conceptual Framework.

The current report is based on the critical evaluation of the company performance in respect of the financial areas. The current report is based on the creation of game for entertaining and engaging the players. The objective of this game is to provide users with the fundamental knowledge of economics and offering a feeling that business can at times is fun. The objective of ARC is to test the current game, developing new a new game, testing the developed gamed by conducting surveys revolving around the game. For ARC ltd, information forms the vital part of their business as they involve making the use of surveys so that it can improve the performance of the game and business simultaneously (Ebert et al., 2014).

The company aims to provide extensive amount of benefits to the users for the purpose of refreshment. The report will emphasis on the financial parameters such as profit and loss statement cash flow, productivity and balance sheet. The report undertakes the trend of change in the cost and profit along with the gross margin reported over the period of five years (Schaper et al., 2014). Furthermore, the report provides an in depth analysis of the several cost associated with the production of the game. It will further provide the analysis of the trend in the operating profit reported by the company along with the key identification of the critical issues affecting the business and suggested matrices to improve the performance of the company.       

ARC limited is scheduled to incur sales of £56.18 for the first financial year with cost of sales being £25.26. The gross profit for the projected first year is £30.92 (Colman, 2016). The profit and loss statement consists of the fixed overheads of £66.93 with promotion cost being £166.00 and research and development cost of £10.70. Upon analysis, it is found that the company incurs an operating loss of £303.21 with pre-tax loss of 369.84. Comparatively in the second year, the company reported sales revenue of £933.93 million with cost of sales being £654.72. Overheads costs represented a fixed overhead of 57.93 in comparison to the first year fixed overhead cost of £66.93. The operating loss reported has relatively come down to £97.80 million from a previous loss of £303.21 million (Henderson et al., 2013). In subsequent year, high sales revenue has been reported by the ARC ltd of 3722.69 with cost of sales being £2894.11 for the year. In comparison to the second year, the company has reported a higher gross profit of £424.13 million, which was relatively higher than the last year of £279.21 million. For the fourth and fifth year ARC ltd projected sales is 2637.01 and 3722.69 respectively (Thomas et al., 2014). The gross profit accounted for £828.58 million with 840.36 for the fourth and fifth year respectively. Narrowing its loss from the third year the company reported the pre-tax profit of 161.00 million, which again fell negative in the subsequent year to -£146.53 million.

Issues affecting the performance and suggested matrices

The balance sheet represented a fixed cost of asset being £630.00 after accumulated depreciation of 70.00. The current assets reported consisted of stock value of 443.41 million with debtors and bank balance of £127.32 million. In the second year, the value of asset fell due to the high cost of depreciation comprising of 133.00. The current assets also relatively fell to 179.37 with value of stock was previously reported for 443.41. The total amount of asset reported were 1130.16 for the first year whereas in the second year the total asset increased to £1361.37 million (Zhang & Andrew, 2014). The shareholders equity represented £500.00 with total shareholders fund found stating a negative value of 74.96 million. This is due to the fact that ARC ltd reported a net loss in its retained earnings of -£574.96 million.

Comparatively in the third year the fixed rose to 927.20 million while the current assets represented the stock value of £347.49 million. The bank Balance reported by ARC ltd stood £667.37 million in the second year whereas in the third year it fell to 223.36 million. The company reported a substantial increase in its bank balance during the fourth year of its operation, which can be mainly attributed due to its increase in sales revenue (Weil et al., 2013). This ultimately led to high amount of net current assets of 1542.27 with total amount of asset reported after deducting the current liabilities represented 2185.57.

The cash flow overview provides for the first year represents material cost of 382.23 with cost of wages for the first year being 11.25. The total overhead cost represented 264.12 with high factory cost of 650.00 for the opening year. The closing bank balance reported by the company during the first year is 127.32 million with loan amount of 872.68 million (Hatten, 2015). In the second year, the direct material cost reported was lower than the first year of 376.64 million with closing bank balance of 667.37 million, which is higher than the first year. The closing bank balance provides somewhat fluctuating trend as it was found in third and fourth year the bank balance of 223.36 and 779.62. In the final year, the company had material cost of 3345.75 million with high amount of bank loan of £1178.69 million.

For model Metro and Prestige, the targeted production was 27400 and 4800 respectively. The market share for Metro consisted of 0.01% while the market share for Prestige during the first year represented 0.07. The gross margin for Metro in the initial year of production consisted of 38.04 while for the prestige the gross margin was reported to be 57.48%. Comparatively in the second year, the market share increased from 0.01 to 0.88% for Metro while for Prestige the market share increased to 0.63%. The productivity level achieved for Metro represented 85.71 while for Prestige the productivity level comprised of 18.90 in the second year of operation (Mariotti & Glackin, 2014). During the third year, the company introduced a new model named City, which yielded a gross margin of 26.61% and acquired a market share of 1.10%. Other models such as Prestige and Style reported a market share of 1.05 and 1.48 share represented. The gross margin for Prestige reported was 38.31% for the fourth year whereas in the fifth year, though the model gained the market share of 2.36 per cent but its gross margin fell to 28.38% due to lower units of production.

Conclusion

On critically evaluating the performance of the ARC ltd few critical issues are found to be influencing the performance of the company. From the analysis, it is found that volume of sales did not justify the investment required for the production with total capital employed was 1,130.16 for the first year. In the subsequent year, the total amount of capital employed was £1,361.37. Over the period of five-year, the total capital employed is on a rising trend but necessary amount of sales is required to overcome the deficit in post tax profit (Iliev et al., 2015). Furthermore, the quality of the models represents under quality cost, which requires extensive amount of training cost to improve the labour productivity. Another prime issue identified is the inappropriate perception in marketing by the management.

To improve the performance of the company some specific areas needs to be focused such as re-designing the specification for both its current models of Metro and Prestige. Furthermore, the organisation should cut down the training cost by increasing the salary for the workforce. Furthermore, the company can increase its output of production and the process of automation by sufficiently forecasting the target amount of sales. It can also re-allocate the marketing budget by eliminating the unnecessary cost associated with the promotion and advertisement(Gollenia, 2016). The report will also emphasis on the closing amount of bank balance reported by the company from its first year of operations along with the trend over the period of five years.

Conclusion:

The report provides an overall forecast of the financial performance of ARC ltd. From the analysis, it is found that there are still several areas for the company to work with their current set of models by adjusting the selling price. Furthermore, through the help of reduced training cost and increased salary the company can retain the workforce and simultaneously improve the performance. An increased productivity in its output is necessary for the company in order to improve the production level, as this will help ARC to increase its production level for each set of model. It is noteworthy to denote that the team has emphasised on notion of developing the game where players could feel the excitement and competitiveness with real attitude of business. Researching through playing lots of business games and working with brainstorming session helps in promoting team work. Perhaps, it can be mentioned that even though it is evident that there is still few areas where improvement can be done and there are large number of ideas, which can be developed in order to make the game more professional.

Reference list:

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Thomas, D. F., Gudmundson, D., Turner, K., & Suhr, D. (2014). Business Plan Competitions and Their Impact on New Ventures’ Business Models. Journal of Strategic Innovation and Sustainability, 10(1), 34.

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Zhang, Y., & Andrew, J. (2014). Financialisation and the conceptual framework. Critical perspectives on accounting, 25(1), 17-26.