Management Report-Finance Department-A Free Essays

URSULAFC Ltd. has been operating in the plastic industry for 3 years of manufacturing and distributing helmet (product 1) and plastic table (product 2). Overall, the company had to confront with many challenges and difficulties in the market, competing against strong competitors. As a result, UFC’s recent performance is not very favorable. This suggests that the company should review the operation in the 3 manufacturing years.
In this report, Finance manager is going to present the company’s performance, the whole finance’s decision, reflection on performance and suggest several advises to help the company being out of risky period.
Specifically, all the aspects of finance department will be taken into account. For instance, finance ratios, which are the Key Performance Indicators (KPIs), will be analyzed in order to approximately figure out the finance position of the firm.
After examining all finance’s decision, the report reveals that UFC is now in a critical circumstance which needs to be changed by new strategy mentioned in the recommendation.

I. Executive summary 1
II. Overview of company’s performances 4
III. Overview of finance’s decisions 6
IV. Result analysis 8
Profitability ratios 9
Leverage ratios 10
Liquidity ratio 10
V. Performance reflections 11
VI. Recommendations 14
VII. References 15
VIII. Appendixes 16
Cost Parameters 16
Marketing and Finance Limits and Time Lags 17
Production Limits and Time Lags 18
Other graphs 19


After running the business for 3 years, at the end of quarter 12, UFC got the rank 5, 9% of the market share and had the downward sloping trend. The table and figure below show the overall information of UFC.
Comp Sales Income ROA Forecast errors Rank
1 12,396,288 -1,684,827 -6.61 145,120 9
2 8,875,634 -825,065 -5.06 48,729 7
3 18,710,810 287,506 1.69 95,056 2
4 14,441,580 -457,288 -1.55 82,670 6
5 18,722,720 500,493 2.46 63,017 1
6 14,127,160 -465,391 -1.17 105,587 5
7 18,395,050 122,278 1.19 91,362 4
8 20,159,970 200,278 1.91 73,663 3
9 9,949,220 -1,911,118 -7.84 145,617 10
10 12,989,290 -819,017 -3.66 92,237 8
Table 1: Overall industry performance
The company’s performance can be divided into 3 parts, fluctuated part, developed part and regression. Firstly, from quarter 1 to quarter 4, the company’s sales and net income fluctuated. In comparison with the average industry, except quarter 3, the company sales and net income were slightly smaller. In addition, in quarter 2 and especially in quarter 4, the company had made big losses while the average industry had high income*. Due to the poor performance, UFC after 4 quarters stood at the rank 9 over 10 competitors.
Secondly, indentifying and analyzing the problem, the board of director had made several adjustments in order to revive UFC’s image and re-build the consumer goodwill. Those adjustments brought may changes in UFC’s performance, and UFC first time came to the top 5 company. From quarter 5 to quarter 8, UFC always achieved the positive incomes and a bit high rate of ROA. For instance, net income in quarter 5 was 43.674 which was more than 4 times increase in comparison with the previous quarter, then UFC reached a peak in quarter 7 with $81.535 of income, 3,91 of ROA and stood at rank 2 after the giant JayLean at that time. However, there were several of fluctuations that led the company cannot perform well in the following year.
Ultimately, by making some wrong decision, UFC failed to compete with the other top companies in spite of standing at rank 5 overall. In quarter 9, the company’s net income declined steadily from $38.803 last quarter to $3.019. Afterward, UFC continuously fell without control and lost it position from rank 3 in quarter 9 to 6, 7 and 10 in quarter 10, 11 and 12. The company’s incomes had reached the inverse record with -103.097, -246.124, and -302.649 in the last 3 quarter. If there are no strongly reformations, the company will possibly go bankrupt.

Quarter Sales Net income Ranking Market share Industry sales avg. Industry income avg.
1 558.952 2.982 8 9,3 603.058 16.371
2 477.912 -2.643* 10 7,1 669.184 16.021
3 816.360 14.199 5 10,7 707.710 9.258
4 585.086 -12.780* 8 6,9 844.456 10.708
5 1.150.660 43.674 6 11,5 995.997 16.175
6 1.210.410 17.696 8 10 1.207.582 36.110
7 1.606.330 81.535 2 12,3 1.305.830 1.124
8 1.621.620 38.803 5 9,6 1.696.025 18.673
9 1.794.590 3.019 3 13,4 1.339.992 -78.761
10 1.722.240 -103.097 6 8,9 1.945.582 -127.841
11 1.697.990 -246.124 7 8,5 1.996.188 -188.304
12 884.960 -302.649 10 5,9 1.512.381 -234.809
Table 2: Quarterly UFC’s performance


1. Short-term loan decision
The short-term loan is the amount of money the company needs to cover the operating activities such as the cost of marketing and production. The interest rates for short-term loan is 10.0 however, if actual requirement is higher than requested, the company has to pay a penalty of double the normal interest rates. In terms of short-term loan decision, UFC did not control and balance its operating activities. Hence, UFC needed to depend too much on short-term loan, for instance, the company’s short-term loan granted from quarter 5 till the end was $700,000. In addition, UFC finance department made almost wrong forecast, therefore the company have to pay double interests than normal.

Quarter Short-term loan granted Actual short-term loan required Short-term interest expense
1 230.000,00 197.296,00 7750
2 333.333,00 354.738,00 5750
3 500.000,00 405.854,00 17737
4 300.000,00 428.408,00 12500
5 700.000,00 813.585,00 22491
6 700.000,00 893.884,00 42713
7 700.000,00 1.037.005,00 46929
8 700.000,00 1.104.676,00 54443
9 700.000,00 856.150,00 57996
10 650.000,00 880.271,00 44948
11 700.000,00 1.118.576,00 46214
12 700.000,00 1.783.431,00 55929
Table 3: short-term loan decisions

2. Long-term loan decision
Long-term mortgages are funds the company need for investments such as buy plan capacity. All of the mortgages requested will be accumulated and the new mortgage requests are also added to present mortgage retirement. Basically, UFC did not request much mortgages, the company almost request a bit smaller amount than its short-term loans. Therefore the interests UFC need to pay each quarter were quite less than short-term interests. However, by buying huge number of plant capacity and making losses too much in the last 3 quarter, UFC needed to use a huge number of mortgages in order to reduce the penalty of short-term loan rates. For instance, UFC had requested continuously $90.000, $180.000 and $300.000 in quarter 9, 10 and 12; especially $600.000 in quarter 11 when the company had just suffered from the first big loss in quarter 10. This issue led the company’s liabilities to be bigger and the company will go bankrupt if it cannot afford to repay these loans.

Quarter Mortgage requested Mortgage interest Mortgage retirement
1 103.500,00 5.400,00 10.000,00
2 - 7.493,00 13.320,00
3 - 7.193,00 13.320,00
4 180.000,00 6.893,00 13.320,00
5 - 10.643,00 18.922,00
6 - 10.218,00 18.992,00
7 135.000,00 12.829,00 22.808,00
8 - 12.316,00 22.808,00
9 90.000,00 11.803,00 22.808,00
10 180.000,00 15.790,00 28.071,00
11 600.000,00 18.533,00 32.948,00
12 300.000,00 31.292,00 55.630,00
36.795,00 65.405,00
Table 4: Long-term loans


In general, UFC performed virtually the same as industry average. These graphs below indicate the quarterly income of UFC which is quite fluctuated. Quarterly the company’s incomes were below the average of industry. This is the result of not having clear strategy in business plan. Since quarter 6, although UFC got the income above the industry average, the net incomes of UFC has decreased dramatically followed closely to the market trend.

Figure 1: UFC’s quarterly income

Figure 2: UFC’s Total income

Figure 3: UFC’s quarterly ROA
ROA ratio measures the ability of the company to convert resource into bottom line profit. In general, the industry average of ROA divided into 2 periods. In the first 8 quarters, this figure was positive, which reflected the bright stage of the plastic market. Nevertheless, in the rest quarters, the situations became worse for the whole industry including UFC. After quarter 8, ROA of the industry fell sharply from 1.12 to -5.1 whereas UFC’s ROA declined slightly from 1.83 to 0.15. However, the company could not keep performing well in quarter 10 and the ROA of the firm has become negative. Since that time, it continued falling significantly to about -10 at the end of year.


Figure 4: UFC’s debt ratio
The debt ratio measures the proportion of the firm’s assets financed with non-owner funds. As the graph indicates, UFC’s debt ratio has been increasing during 3 years of operating. Recently, the total liabilities have been greater than total assets of the company, which may result in the worst situation that is bankrupt.


Current ratio determines the ability of the firm to meet its short-term financial obligations. This figure shows that in every quarter, UFC always has financial ability to finish the firm’s short-term duty such as paying sufficient salary for employees, utilities fee, etc.
Figure 5: UFC’s current ratio

The poor performance of the company overall can be clarified in several factors, they are
First of all, in the 1st and 2nd year, the breakeven points (BEP) of UFC’s product is quite high especially the BEP for product 2, in some cases the BEP for P2 were higher than sale volumes; those made the company’s losses. This issue directly led to the company’s income to be low even the sale volumes were quite high. Identified the issue, Finance manager suggested production department should invest more on Human resources development to improve the productivities of UFC’s workers that will make the cost of production be lower. The problem had been step by step solved since quarter 5 when UFC’s BEP for both products were lower than the industry average (figure 6 and 7).

Figure 6: Breakeven point for P1

Figure 7: Breakeven point for P2
Secondly, UFC was completely wrong when decided to expand the company from quarter 9. Within the company, production department settle on buying huge number of plant capacity together with investing quite much in human resources development and hiring workers. For instance, in quarter 9, production department hired 17 workers, bought 2000 plant capacity, 8 workers and 4000 plant capacity in quarter 10, 26 workers and 3500 plant capacity in quarter 11. This wrong decision caused the company lots of troubles. First of all, although plant capacity and workers’ productivity were high, the company’s breakeven point was high, too due to the extremely high of labor cost, improvement and sales and administration cost.
Quarter UFC Industry Avg.
P1 P2 P1 P2
9 12967 13503 12313 11042
10 10572 18821 15130 19497
11 16408 18870 21602 19419
12 17680 13774 22083 25604
Table 5: UFC and industry breakeven point last year
In addition, UFC had to face with the awfully high rates of interest in both long-term and short-term (table 3 and 4). This directly resulted in low, even negative income the company actual suffered.
Thirdly, marketing and production department did not co-operate efficiency that led to the company sale volumes to decrease dramatically. Production department tried to follow the cost of leadership strategy that the more units were produced, the less COGS the company got. This is also extremely risk because, if the company does not sell almost of products within the quarter, it will have trouble with warehouse costs; low net income due to little revenue cannot cover the huge cost of productions. On the other hand, marketing department did not follow the market trends. Current market demands were less in product 1 and more in product 2. However, UFC continued producing both products with a huge number in order to lower the COGS and expected more profit. In addition, in quarter 12, consistent with the assist from finance that reduce advertising expenses together with lower the price by $4 to $5/unit, the company’s income will achieve more than $200.000. In fact, the company’s price were extremely competitive in comparison with the 1st ranked company (table 7); nevertheless, UFC has suffered the biggest loss since established with approximately 800,000 of sale volumes, -9.39 of ROA and $-302,649 net income.

Quarter 9 10 11 12
P1 P2 P1 P2 P1 P2 P1 P2
Forecast 18000 13800 13700 18500 20000 16000 28050 19000
Actual demand 16582 8225 6866 17247 7910 14822 4460 8246
Price 74 69 75 70 76 74 69 70
TV ads. 4 2 8 10 15 10 9 9
Newspaper ads. 88 70 88 99 90 90 84 60
Magazine ads. 10 10 8 10 29 29 30 20
Table 6: Marketing decision and actual
Quarter 12 UFC Plastino
P1 P2 P1 P2
Forecast 28050 19000 15660 20000
Actual demand 4460 8246 9314 20558
TV ads. 9 9 10 10
Newspaper ads. 84 60 99 99
Magazine ads. 30 20 45 50
Price 69 70 73 74
Sales 884960 2159920
Income -320694 56362
Table 7: quarter 12, UFC vs. Plastino
To conclude, the ineffectively cooperating between managers in UFC and making too many wrong analysis and evaluation in market cause UFC’s poor performance. UFC actually need a new strategy to revive and develop in the future.


Initially, due to the current market trend, UFC as others competitors should stop or reduce producing product 1. This product has become “dog” in the BCG matrix, and then it will be eliminated soon.
Secondly, according to BCG matrix, from now on, product 2 has been the “star”, and possibly become “cash cow” shortly. Therefore, the company should invest more on this product.
Thirdly, stop producing product 1 will reduce the company’s revenue. To maintain the company’s revenue and develop, UFC might prepare for introducing a new product for example, toys for children or mobile phone plastic case. However, the company should do market research strictly and cautiously to avoid risks.
Finally, at the moment, UFC is requiring immediately a new strategy of running business to revive and develop. In addition, the company also needs much more funds to cover the recent losses and return to manufacture well. Therefore, the broad of director should appeal for investments from shareholders and promise to provide well-dividend repaid.

Anderson, P, Beveridge, D, Scott, T & Hofmeister, D, 2003, Threshold competitor, Prentice Hall, New Jersey