Sourcing Essentials

Table of Contents

Cover page.........................................................................................................................................

Table of content.......................................................................................................

Executive summary..................................................................................

Introduction....................................................................................

Assignment tasks...............................................................................

Question 1...............................................................................................

a. Evaluate the finances of this organization highlighting the strengths and weaknesses of their position..................................................................................................................

b. Provide a justified recommendation as to whether you would consider this organization for a sourcing exercise for Facilities Management Services emphasizing any limit that should be placed on the financial exposure........................................................................................

Recommendation.............................................................................................

Conclusion............................................................................................................

List of references...........................................................................................................

Executive Summary

Financial statements are very important top any organization in different ways, and they include the fact that the management and owners of any organization base on financial statements in their process of coming up with sensitive and important decisions regarding the organization now that they play a major role in the continued operations of the organization. The financial analysis takes place on such financial statements of the organization with the aim of providing the owners and management of the organization with related statistics that are more detailed and comprehensive. The financial statements are also part of the annual reports of the management of the organization to the stockholders. On the other hand, employers also need such information for them to come up with collaborative bargaining agreements with their respective employees. Also, employees need financial statement information for them to be assured of their employment position within the organization, in the event that organization is a going concern or not. Prospective investors make use of the financial statements in assessing how viable it is for them to invest in the organization. Investors, in most cases, make use of financial analysis that has been prepared by professionals and uses such analysis as a basis for coming up with investment related decisions. Financial institutions make use of financial statements related information in making business decisions as to whether to offer credit facilities to an organization or not. This financial statement assessment involves the analysis of individual statement in the balance sheet as well as assessment of their impact to the organization. It will also take into consideration the possible recommendations in relation to the financial statements after the analysis. The paper will also assess the income statement of the organization in question and come up with recommendations on ways of reducing costs while at the same time increasing profits in an effort to increase the equity of the organization by retained earnings that can be used in expanding the organization. It will also highlight the impact of the suggested recommendations to the entire position of the organization as well as the individual financial statements.

Introduction

The main aim of the financial statement is to offer all the stakeholders with the relevant information on the financial position of the organization, performances of the organization, and the changes in the financial position of the organization. Such information is very important for various stakeholders in relation to making better business related decisions.

A financial statement is expected to be comparable, understandable, and remain relevant according to the day to day operations of the organization. The assets, profits, liabilities, loss and equity relate directly to the financial position and operations of an organization. The stakeholders are expected to comprehend to these financial statements as well as those who have a reasonable knowledge and understanding of economic and organization activities in addition to accounting and are prepared to diligently go through and use such information (Beaver, Correia, and McNichols, 2011).

A financial report or a financial statement of an organization refers to its formal record that indicates the financial position of that organization as well as all its activities and process that related to its financial activities. The financial statement should offer the relevant financial information of the organization in a way that is well structured and in a manner that can be easily understood by any stakeholder interested in the financial progress of the organization.

Such financial statements normally include organization financial information that is normally based on in the decision and discussion of the organization management as well as their analysis. There are several types of these financial statements and they include the balance sheet or the statement of the financial position, statement of comprehensive income or income statement, expenses, and revenue or profit and loss, the statement of net changes in equity, and cash flow statements (Beaver, Correia, and McNichols, 2011).

In the organization in question, the financial statements that are provided are the income statement and the balance sheet. The income statement is used to provide information on the earnings of the organization, the expenses that have been incurred by the organization in that financial year, and the ultimate difference that exists between the earnings of the organization and the expenses. There is two possible outcome, and they include the organization making a profit in the event that the income of the organization is more as compared to its expenses or the organization making a loss in the event that its expenses are more as compared to the earning received during that financial records.

The income statement offers information that relates to the operations of the organization. This normally includes sales as well as several expenses that the organization incurred during a specific financial period. A statement of financial position or a balance sheet, on the other hand, offers information on the liabilities and assets of the organization together with the equity of the owners or investors of the organization at a specified financial year.

A balance sheet as a financial statement summarizes the assets, equity, and liabilities of the organization at a given fiscal period and in most cases at the end of the financial period. The role of the Balance Sheet is to provide the interested stakeholders the position of the financial condition of the organization together with showing what the organization owns and what it owes. Such information helps the interested stakeholders to quickly have a glimpse of the financial capabilities and strengths as well as its losses and weakness of the organization.

Balance sheets together with income statements are considered as the most basic elements in providing financial information and reporting to potential lenders such as investors, banks, and vendors who have to consider how much credit the organization can be granted. The paper is going to examine how worth the organization is to source its services by looking at its strengths and weakness of the organization basing on the financial information of the organization on the basis of the balance sheet and income statement provided. This information will be used to offer recommendations as to whether the organization will be considered for sourcing exercise for Facilities Management Services.

Assignment Tasks

1. Evaluate the finances of this organization highlighting the strengths and weaknesses of their position.

The financial statements that have been provided for this assignment are a balance sheet and the income statement for the organization in the financial period between 2013 and 2014. The financial statements offer valuable information when it comes to analysis and assessing the financial position of the organization. From the financial statement provided, one can be in a position to access the strengths or the weakness of the position of the company.

By looking at the income statement of this organization, it is evidence that the organization incurred losses in its first fiscal tear and then went ahead to make profits in the following fiscal year. This can be based on to show that the organization performance is better and it is experiencing an increase in its sales volumes. Such an increase can be credited to some reasons which may include intensive campaigns when it comes to advertisements that has proved to be successful to the organization (Beaver, Correia, and McNichols, 2011).

The amount of the sales turnover of the organization was also observed to increase over the one-year fiscal period as compared to the amount of sales turnover in the year 2013 and that in the year 2014. The increase in the profits, as well as the sales revenue witnessed during this period by the organization, is an indication of how the organization is strong in its financial position in the market.

The financial statements also show that the operating expenses of the organization are so high that it takes the greatest percentage of the earnings of the organization. This can be interpreted to imply an internal weakness in relation to the position of the organization. Such a large cost is likely to hold the organization from maximizing on its true potentials and utilization of the available resources to make desired profits.

The operating expenses in the first financial year from the financial statement were more as compared to the gross profit made by the organization and hence this resulted in the organization making losses during this financial period. This is a sign of weakness to organization, and it puts the organization in a bad position now that the losses the organization incurred in this financial year had to be carried forward to the following fiscal year and claimed from the earned profits of the following fiscal period.

Taking into consideration the operational profits gained in the fiscal year 2014, the financial statements show that it is still high and this implies a significant reduction in the organization profits. This is an indication that the organization is prone to the liquidity issues at some point in its future fiscal periods following the low amounts of current assets that the organization has which can be easily converted to cash when it finds itself in such a situation (Bernstein and Wild, 2000).

The accounts receivable amount as it appears in the financial statement is large enough. However, this amount can minimize through reducing the period given to debtors. This is the debtor's account in the financial statement that seems to be holding more than enough money of the organization. The accounts receivables should be included in the financial statement as income to the organization after the organization has received it from its debtors.

Reducing the time given to debtors is important to the organization now that the current position of the organization is not as strong as it should be hence an indication of a sign of weakness of the current position of the organization. Many debtors is also a sign that the organization is likely to experience liquidity issues over the coming fiscal years hence an indication of poor fiscal position of the organization.

The capital structure of the organization in question is made up of the retained earnings and share capital. The equity composition of the organization is more of earnings that it has retained from the income statements operations elements as compared to the share capital of investors. The financial statements show that the organization does not have borrowings or loans as well as long-term liabilities. The retained earnings are an indication of the organization making use of all its accrued income in expanding its business.

The financial statement also shows that the shareholders of the organization did not receive any kind of dividends for their investment into the organization. Lack of dividends for the shareholders is a sign of weakness by the organization now that it means that the organization lacks attraction to investment for potential business to invest in the organization now that any potential will shy off to invest in an organization where his or her investment does not earn any returns.

This can also be interpreted to mean that the organization has a strong financial position now that expenses have been reduced for the main purpose of growing the business and expanding the organization. It is, therefore, important for the organization to maximize its retained earnings now that they lack any floatation costs that have to be incurred in the process of raising it.

It has also been identified as the most convenient and easiest financing form. The financial statement also shows that the organization has many creditors that it owes money to. This can be interpreted as a sign of the organization experiencing liquidity issues, and this means that it is experiencing challenges in either paying the creditors’ or setting its accounts payable. The financial statements also show that the organization has large amounts of liabilities and this is assign to show that it is experiencing financial issues in its current financial-related operations (Bernstein and Wild, 2000).

(b) Provide a justified recommendation as to whether you would consider this organization for a sourcing exercise for Facilities Management Services emphasizing any limit that should be placed on the financial exposure (maximum contract value).

Facility management refers to a field of several disciplines that are devoted to the coordination of organization, space, people, and infrastructure. Facility management is in most cases associated with administration and convention centers and it represents various activities that exceed organization services commonly referred to as non-core functions within an organization. Facility management services are not similar now that they always tend to vary and this depends on with the type of organization.

Following the above analyses, I would consider a sourcing for this organization. There exist key elements of the facility management that the organization needs to take into consideration before it decides to source for the services. These key elements include; finance and business, communication, operation and maintenance, leadership and strategy, technology, quality, and environmental sustainability and stewardship.

Following the organization position, I recommend that this organization outsources for facility management services for it to be in a position to understand each aspect of the categories in which its resources is spent. This is a crucial process that is normally carried out by the sourcing team of the organization. It is also expected that the team needs to be well comprehended with every aspect as to why a specific product needs to be purchased by the organization and the effect the move will have on the to their entire processes of the organization.

The organization should also outsource the facility management service for it to understand well what it spent. The main challenge of the finance team is that it first has to get a comprehensive understanding of the organization spending habit. This kind of information is related to how much the organization spends in total and come up with a ratio of what the organization spends to any product or service it supply and categorizes such product as services to organization units. Such kind of analysis does not have to be a hundred percent accurate. In most cases, outsourcing offers bet results for the organization and improves its performance now that it is subjected to progressive innovation in addition to development, work under pressure to minimize its costs and value addition to the core operations of the business.

Facility management has also to be supported with training together with professional qualification that us normally coordinated by the facility management associations or institutes. The facility management is charged with the responsibility of the day to day running of the organization. This happens to be a policy issue, but following the immediacy of the needed response to the numerous activities involved, the facility manager will in most cases need daily report.

Some of the issues involved need more than just regular maintenance, for example, those that in any way can stop the organization productivity or those that have safety implications to the organization, and this can be taken care of through outsourcing facility management services (Fridson, Fridson, and Alvarez, 2011).

Outsourcing has also been observed to improve the efficiency delivery of organization services now that their contracts are normally based on performance. They need to prove their worth through performance for them to have their contracts extended. The organization also appears as to be having management issues now that the current management does not seem to minimize expenses or maximize its profits, which are the main agenda of any organization (Fridson, Fridson, and Alvarez, 2011).

Outsourcing in this situation, therefore, appears to be the best away through which the organization can use to salvage the situation it is in and help itself to avoid the negative effects that the ongoing concerns can have on the organization. The financial exposure to the process of outsourcing of such services should not exceed the current organization cost of having internal staff. This means that the, therefore, the organization has to take into consideration the best approach to minimizing its expenses while at the same time come up with ways of maximizing its profits. This is the key idea behind the FM services outsourcing.

This may also improve the organization efficiency when it comes to the delivery of services now that their contracts are based on performance. This means that a lot of effort has to be put while performing their respective duties and this in the long-run is likely to result in efficiency in the organization and thus improved performance that will be reflected on the financial position of the organization (Fridson, Fridson, and Alvarez, 2011).

To have a contract extended, an organization or entity has to prove its worth and show value for money. The organization needs to outsource for the facility management services for it to be better placed to comprehend its spending. The facility management has in initially have a comprehensive comprehension of the spending trend of the organization.

Recommendation

A capital deduction claim is another means that the organization can make use of in its efforts to reduce tax liability. Therefore, I recommend that the organization should make claims on capital deduction on all its property as well as investments. This follows the fact that capital deduction that includes wear and tear happen to be allowable deductions for the taxation purposes.

This is a way that the organization can utilize to reduce the taxable amount and consequently reduce its tax reliability, which it is expected to honor at the end of its accounting period. The organization should also cut down on its current cost of sale. The management can achieve this through seeking out for alternative suppliers who are better placed to supply the organization with quality services and goods but at a price that is cheaper and reduced. Such a move is likely to increase both the gross profit of the organization together with its net profits.

Conclusion

By looking at how worth the organization is to source its services through examining its strengths and weakness basing on the financial information of the organization in relation to the balance sheet and income statement provided. The information was used to offer recommendation as to whether the organization will be considered for sourcing exercise for Facilities Management Services. The organization has both strengths and weaknesses, and recommendations were provided in relation to the financial position of the business. Following the financial position of the organization, it was recommended that the organization should source its Facilities Management Services.

References

Beaver, W. H., Correia, M. M., and McNichols, M. (2011). Financial statement analysis and the prediction of financial distress. Boston: Now

Bernstein, L. A., and Wild, J. J. (2000) .Analysis of financial statements. New York: McGraw-Hill.

Fridson, M. S., Fridson, M. S., and Alvarez, F. (2011).Financial statement analysis: Apractitioner's guide. Hoboken, N.J: Wiley