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Management Accounting

Executive Summary of Youngblood International Analysis

The report summarizes a case study of Youngblood International. The company's Return on investment and profit margins have been calculated in the report according to the figures provided in the case study. Also, objectives for the four perspectives of the scorecard have been created, and accordingly lag and lead indicators have been described in the report.

Table of Contents

Introduction.

ROI for both the years.

Bonus for the Managing Directors.

Reason for reluctance in investment for brewing machine.

Scorecard.

Newspaper Division.

Brewing division.

Cable Division.

Strategy Map.

Lag and Lead Indicators.

Conclusion

References.

Introduction to Youngblood International Analysis

Youngblood International operates in 3 divisions that are Brewing, Newspaper, and Cable Television. The company has its operation in Australia and has its head office in Brisbane. Every division of the company is headed by a managing director who has agreed to achieve a set ROI for the company that is developed every year as an annual budget setting. A new accountant manager has been appointed for redesigning of performance measurement. Also, Mr. Smith, MD of the company is planning to invest in new equipment. The report studies the ROI that has been achieved by the company and also the bonus that will be provided and will draw a scorecard for the divisions.

ROI For Both the Years

 

ROI

Profit Margin

Asset turnover

 

Last year

Current Year

Last year

Current year

Last year

Current year

Newspaper

10.00%

11.00%

17.00%

20.73%

58.82%

53.06%

             

Brewing

19.00%

17.00%

20.00%

24.44%

95.00%

69.54%

             

Cable TV

11.11%

5.00%

11.11%

41.18%

27.27%

12.14%

ROI for the company depicts the returns that have been generated on the investments that have been made into the company (Pearce, 2016). The newspaper division of the company has improved by 1%. In the current year, the company was able to attain 1% more than the targeted ROI. Also, the profit margins depict the profits that have been generated after deducting all the costs (Pavic et.al, 2018). It has improved for the company by 3%. The company incurred enough sales to improve its profit margin for the newspaper division. But the asset turnover was reduced for newspapers from 58% to 53%. This shows that the assets were used less effectively than they were used in the previous year. The company can improve in this section and can make progress in its sales and profit margins.

For the brewing division of the company, the target ROI for the company was 18 and 16 percent while the achieved ROI in the last year was at 19% while for the current year it achieved 17%. The company performed better than it was expected in this division but an overall glance of the brewing division suggests that the company has reduced its ROI. Targeted ROI was also reduced by the company. This depicts that investments were not placed appropriately but the profit margins of the company improved by 4% and asset turnover fell significantly. The company's return on investments or assets for the brewing division was lower. This shows the company in the current year has not put its investments to proper usage to attain good results.

The cable division of the company has the same issues. The profit margins for the divisions have improved significantly but the ROI has declined from last year to the current year. The targeted ROI for the company has been achieved but overall ROI and asset turnover has reduced. The assets for the division have improved as new assets were brought in but the returns reduced. This shows that the capacity of the utilization of assets has reduced and the company is not able to generate returns on assets (Nurlaela et.al, 2019). This area of the company needs improvement so that it can grow further and have better results. From all the 3 divisions newspaper division has performed the best for the company as it is the only division whose ROI and profit margins have improved and also return has not declined significantly. There is a marginal fall that has happened which the company can cover in the next year. While the other two divisions, despite achieving targeted ROI showed a negative trend of growth in the company.

Bonus for the Managing Directors

The company has a policy for a cash bonus to the Senior Managers who have achieved the targeted ROI and with every point increase in the ROI, shares are allotted to the managers. For the last and current year, the Manager of the company who have made the following bonus with shares:

 

Last year

Current Year

Bonus+Shares

Division

Target ROI

Achieved ROI

Target ROI

Achieved ROI

Last Year

Current Year

Newspaper

10%

10.00%

10%

11.00%

$60,000

$60000+10000 shares

             

Brewing

18%

19.00%

16%

17.00%

$60000+10000 shares

$60000+10000 shares

             

Cable TV

2%

11.11%

3%

5.00%

$60000+90000 shares

$60000+20000 shares

             

The bonus made by the manager in the newspaper division for last year was $60000 while for the current year it was at $60000 cash and 10000 shares as targeted ROI was 10 while achieved was at 11%. In the same manner brewing division has $60000 cash plus 10000 shares for both the years. Cable division last year bonus stood at $60000 and 90000 shares while for the current year it was at $60000 and 20000 shares.

Reason for Reluctance in Investment for Brewing Machine

The cost of buying new equipment is $10 million that might lead to an increase in the profits of $1 million. It is expected by Smith that the acquisition will satisfy the minimum required rate of return of 10% but if the acquisition is not made The Youngblood Group divisional ROI to reach down to 14%.

At present, the company's divisional profit for both the years is:

Brewing

Profit

Last year

950000

Current year

1100000

   

Total

2050000

If the company purchases new equipment than the profits will be increased by 1 million while the overall assets will increase by 10 million. The overall change in the return that will come is as follows:

Cost of the equipment

10 million

Increase in profit

1 million

Last year profit

1100

After increase

1200

Total assets

6471

Increase in assets

7471

Return

16%

This shows that the company will be able to generate the targeted return only even after purchasing the new equipment. The amount invested won't specifically generate higher returns for the company. This might make Smith unsure of the investment as at present with the old equipment, the company can generate a 17% return. But Smith is expecting a downfall in the ROI and is expecting to achieve only 14%. Since Smith wants to attain the maximum benefit but concerning investment the returns are lower the investment is not giving him very good returns that might attract him to acquire the equipment for benefit. Still, as per the given circumstances, Smith should purchase the equipment, or else its ROI will fall as customer demands will not be fulfilled.

Also, for the brewing division of the company, the profits have declined from the last year to the current year even after assets being increased. Investing a huge amount in the scenario poses a risk of failure. If the company is not able to utilize the asset appropriately than it will have to face losses and also interest expense will increase for the company (Patin, Rahman & Mustafa, 2020). Thus, due to these reason’s Smith was reluctant to purchase the equipment.

Scorecard

Newspaper Division

Financial Perspective

Increasing the value to shareholders

Customer Perspective

Improving the reach of newspaper to people

Internal business process

Improving the data collection method

Learning and growth

Arranging training from the top journalist for business understanding

Brewing Division

Financial Perspective

Reducing the cost of brewing

Customer perspective

Providing different variety of beer

Internal Business process

Improving the machinery

Learning and growth

Training for manufacturing different flavors beer

Cable Division

Financial Perspective

Increasing the number of customers

Customer perspective

Satisfying the customer through better services

Internal Business process

Hiring skilled employees

Learning and growth

Training on customer satisfaction

Strategy Map

Perspective

Objective

Newspaper financial

The objective of the perspective is to improve the value of money that the shareholders have invested in the company. Once the value increases ore investors will be willing to invest. The company will have easy access to capital for growth. The value of share prices will also describe a good position of the company in the market. Hence, improving the value for shareholders will also benefit the company overall.

Brewing Financial

The objective is to reduce the prices for the products by reducing the cost of operations. The company's sales revenue has declined. It is required that the company boost up its sales. This can be done by reducing the cost as this will give them an edge over the other and hence it will help in boosting the revenue.

Cable division Financial

The company's sales revenue has declined drastically. It is required by the company to boost it to improve its functioning. This can be done once the company increases its customer base. This will help in increasing the revenue.

Newspaper Customer Perspective

Newspapers should be within the reach of people. The company should make sure that the newspaper is distributed to the maximum areas. It will improve the value and customer satisfaction for the company.

Brewery Customer perspective

Customers these days are wanting a different kind of beers. They would like to have flavors different from the traditional beers. The company should focus on providing what the customers want. This will improve the satisfaction among the customers for the brand.

Cable division customer perspective

The objective of satisfying customers is to improve the value of the business in the eyes of the customer. The company can do so by providing the packs to the customers which they want or by providing them connections where they don't face hindrances in operations.

Newspaper internal control business

The more efficient data collection techniques, the better and reliable data for the paper will be collected providing customers with accurate news (Adhiarso, Utari & Hastjarjo, 2018).

Brewery internal control process

Improving the machinery will help the company in producing quality beers that in turn will bring satisfaction to customers.

Cable division internal control process

Skilled employees will be able to deal with the customers in a better manner. Also, they will be able to handle the queries well and satisfy the customers.

Newspaper learning and growth

Webinars from journalists will help the team in understanding the methods of developing the content in a better manner (Lecloux, 2018). It will also give them an understanding of how to collect the data.

Brewing learning and growth

The objective of training is to provide employees with the knowledge of performing the activities of manufacturing in a refined manner.

Cable learning and growth

To get involved with the customers and knowing what they want requires a good set of communication skills that can be developed through training of employees.

Lag and Lead Indicators

Lag and Lead Newspaper

Lag- Brewery

Lag-Cable division

Financial: Share price will help in determining the lag. The downward movement in prices will show a lag in the financial perspective.

An increase in the value of share prices in the market will determine a lead from the financial perspective of the company.

Financial: If the operating cost increase, there is a lag.

While if there is a reduction in cost it is a lead.

Financial: The customer base remaining the same will be a lag.While the increase in the base of customers will be a lead.

Customer: A decline in the newspaper delivery places will show the lag.

While the increase in the number of places where the newspaper is delivered or an increase in customers will show the lead for the company.

Customer: Being not able to provide the beer customers prefer is a lag and can be reflected in low sales.

While an increase in customers of new beer shows the lead.

Customer: Customer is dissatisfied with services is a lag. It can be determined by a reduction in customers and their feedback.

While the increase in the number of customers and positive feedback is a lead.

Internal Business Process: The data printed in the newspaper being unreliable and the outcomes being different shows the lag.
While data being reliable and matching with the actual outcomes is a lead for the business.

Internal business process: Even after having new machinery, the company is unable to produce different kinds of beers is a lag.

While producing different flavors at ease will be a lead

Internal business process: Employees not being able to convert the lead is a lag.

While employees turning a lead into customers and retaining the old ones is a lead.

Learning and growth: Even after providing the training, no improvement in the writing style or data collection method of employees is a lag.

While the lead will be employees showing the improvement.

Learning and growth: Employees not able to produce quality beer reflecting through customer responses will be a lag.

While different flavors being liked by the customers is a lead.

Learning and growth: Employee not being able to resolve the query is a lag while the employee can handle the client is a lead.

It can be determined through after service responses from the clients.

Conclusion on Youngblood International Analysis

Youngblood International targeted ROI has been achieved by all the three divisions and managers of the company have made a bonus in both the years. Leonard Smith is reluctant in investing into the machine as returns are not that great concerning the investment made. Also, the profits of the division have declined to propose a confusing situation in front of Smith. The scorecard for the company concerning the four perspectives with their lag and lead indicators is based on the satisfaction of the customers and the improvement in sales of the company.

References for Youngblood International Analysis

Adhiarso, D. S., Utari, P., & Hastjarjo, S. (2018). The Influence of News Construction and Netizen Response to the Hoax News in Online Media. Jurnal The Messenger10(2), 162-173.

LeCloux, M. (2018). The development of a brief suicide screening and risk assessment training webinar for rural primary care practices. Journal of rural mental health42(1), 60.

Nurlaela, S., Mursito, B., Kustiyah, E., Istiqomah, I., & Hartono, S. (2019). Asset Turnover, Capital Structure, and Financial Performance Consumption Industry Company in Indonesia Stock Exchange. International Journal of Economics and Financial Issues9(3), 297.

Patin, J. C., Rahman, M., & Mustafa, M. (2020). Impact of Total Asset Turnover Ratios on Equity Returns: Dynamic Panel Data Analyses. Journal of Accounting, Business, and Management (JABM)27(1), 19-29.

Pavić, I., Capuder, T., & Pandžić, H. (2018, June). Profit margin of electric vehicle battery aggregator. In 2018 IEEE International Energy Conference (ENERGYCON), pp. 1-6.

Pearce, J. M. (2016). Return on investment for open source scientific hardware development. Science and Public Policy43(2), 192-195.

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