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They face an increasingly expensive operation environment and the demand of bank debt is growing. A tightening of liquidity shows that their costs of funds are set to rise sharply. This study is focus on the liquidity risk management and a professional liquidity risk management plan is going to be developed. In this study, Avoidance is the case organization, and there are research about this company and also few about main competitor. Firstly, literature will review in terms of liquidity risk management, and following the gaps between Avoidance and the best practices will be addressed.
The more suitable liquidity risk management plan will be analyses by different method and the recommendations will be present at the end of plan. 1. 2 Plan Objective(s) The objectives of this plan is that understanding the financial management practices, and highlight the observed deficiencies in comparison to the best raciest suggested in the literature and develop a revised Financial Management Plan that can address the gaps and set the organization on the path to apply best practices in financial management.
It is important to manage the liquidity risk due to the going concern about company. One better liquidity risk plan could help company to reduce the liquidity risk and improve their financial performance. 1. 3 Research Question The research question is: How to reduce the liquidity risk by improve liquidity risk management plan for the telecommunication industry ? – A case study (Avoidance) 1. Project Justification During the research of this plan, the criteria might need justify is the efficient of liquidity risk management plan. . 5 Outcome(s)/Benefits The outcome which expects to achieve is getting better understand of financial management which include the basic accounting knowledge and the management accounting. Besides, finding out the weakness of current liquidity risk management is another outcome; and a better plan can be designed for Avoidance. 1. 6 -ream CA/work-plan 1 The meeting time: Face -to – face: Group members will meet every Tuesday. Online: email. We ill communicate by email when we need. Schedule Of assignments: Start- up Activity Team CA/Work plan &Case Project Selection 24/09-29/09 Assignment 1 Literature review 30/09-12/10 Assignment 2 Case Project/Organization 13/10-26/10 Assignment 3 Analyses and Development 27/10-9/11 Assignment 4 Final Recommendations & Conclusion 10/11-24/11 Final Report Group Report 25/1 1-30/11 3 Distribution tasks: Coordinator: Banyan You Literature review and discuss: Dianna Nagoya/Banyan You/Major Evaluation Tellers: Banyan You Collect information: Dianna Nagoya/ Major Financial calculation: Banyan WY Dianna Nagoya
Compare between company: Major/Dianna Nagoya. Recommendation: Banyan You Inspection: All group member Final Recommendations & Conclusion: Dianna Nagoya, Banyan You and Major 1. 7 Declarations and Ethical Considerations The declarations of this plan are that all research is online and there are assumptions. This plan writes by Banyan You and Dianna Nagoya and Major, only for study purpose. All financial advice is from this team only not from others. 1. 8 Assumptions and Constraints In this report, some information could not show in the resource which could affect the research result.
For instance, it is possible there were more detail for Avoidance’s liquidity risk management strategies but it Was not in their financial reports. All the research result about companies rely on the information which available in the financial reports. 1. 9 Summary The aim of this report is to improve Avoidance’s liquidity risk management plan by doing the comparison with best practice in the telecommunication (in this case is Tellers). Firstly, the liquidity risks have to be identified in the beginning in order to find out the weakness in the liquidity risk management.
Secondly, the competitors report will be analysis aiming to find out the difference between those two companies in terms of liquidity risk management. Finally, a liquidity risk management plan for Avoidance will present with the recommendations. 2. 0 Literature review 2. 1 Literature on Ratio Analysis In order to analysis the company’s performance of the liquidity, the ratio analysis had been recognized as the main tool. There are various methods for monitoring liquidity of businesses and the most common has been the use of financial ratios (Karma, 2012).
The ratio analysis can help public to measure he financial performance by “see through the numbers”. The ratios describe an organization’s profitability, operating activities, solvency, and leverage (Baja& Drencher, 2012). For example, Koki-Akron (2013) did the research on ratio analysis for telecommunication industry and he believed that can be revealing significant information which are who would like to invest in the company; how the company performed and how the trend will be.
The liquidity ratios are the ratios which focus on the assets and liabilities, which include current ratio and quick ratio. The current ratio and the quick Asia use the values identified as current assets and current liabilities in the Statement of Financial Position report. In telecommunication industry, Return on Sales (ROSS) and Return on Asset (ROAR) are commonly accepted as a major financial performance evaluation tools (Segovia& Katie, 201 1). Current ratio: determined by dividing the total current assets by the total current liabilities to arrive at a ratio between the two amounts.
Quick ratio: provides a more narrow focus and is concerned with only those items otherwise included in the total current assets such as cash, marketable securities, and accounts receivable. Return On Assets (ROAR) : An indicator of how profitable a company is related to its total assets. ROAR shows the efficient that management uses their asset to generate earnings. ROAR= net income/ total assets(Akron, 2013) Return on Equity (ROE) : An indicator of how Profitability Company, and how much profit company can generate with the shareholders’ investment. ROE=net income/ total equity.
Both current ratio and quick ratio analysis are indicators of the ability to pay for every dollar that is currently liable. As part of this study an industry tankard on an annual basis will be calculated and included for analysis purposes. There are still other ratios which also are helpful for the process of evaluation the liquidity position of a business. The most common are the accounts receivable turnover ratio, the inventory turnover ratio and the interest coverage (or interest earned) ratio. However, only liquidity ratios will analysis in detail because they are more effective (Glass, Scallion, Kilo, Restaurant& Stringer, 2009).
As the aim of this paper, liquidity ratio is most comparable with regards to the short time liquidity analysis and they are specifically. For the purpose of this paper the focus will be on the ratios that are most comparable with regards to the short term liquidity analysis and they are specifically. To get better result of ratio analysis, few accounting knowledge have to introduce in the beginning. Total assets consist of all the assets under the companies’ control. And current assets consist of all assets which is convertible into cash within one financial year and under company’s control.
Non-current assets are the assets which are a company’s long term investments and cannot recognize within one financial year in full value. Total abilities are equal to nonoccurrence liability plus current liability (Akron, 2013). 2. 2 best Financial Management practices perceived to be applicable to the Avoidance As the purpose of this study, financial management practices can be identified as the practices performed by the chief financial officer, accounting officer and also other managers in the budgeting, supply chain management, movable asset management and control (Matthias, 2011).
The financial management is focus on efficient and effective production for organization in terms of using financial sources. And there is no doubt that a deter financial management can help organization to achieve success. According to Disdains, Logan& Steele (2001 there is a common belief held that organizations can success easier if the financial information can be controlled better. In order to manage the financial resources effectively, it is important to know that the financial resources can be controlled by organization is very limited (Been & Johnson, 2006).
And financial resources are the key components to acquisition and configuration other resources, in other words, they are the footstool to achieve any other resources (Also, Isakson, & Legendry, 2006). Before the best practice of liquidity risk management model identified, the definition of liquidity management has to be clarified. Liquidity is the ease by an asset being exchanged for another with little or no loss of value (usually cash) (Raman, 2010).
And liquidity risk is the risk that a solvent but illiquid borrower is unable to obtain refinancing (Diamond, 1991 Liquidity risk increases when the short-term debt arises. Liquidity is that company has enough money (cash) to meet the financial obligations. Management of liquidity becomes a crucial issue due to the cut throat competition. Companies desire to hold more current assets and least current liabilities (Salute&Kumar, 2012). Liquidity risk is the risk that the company is not able to meet its financial obligations (Foot, Manson& Sins, 2008).
Liquidity can be measured both in qualitative and quantitative terms (Chorals, 2002). He also developed a model of the risk sources and means and its control. A rational method to manage liquidity would look into the growing interdependence between economic risk and entrepreneurial risk. Also the day-to-day operations had been included without losing sight of the anger-term aftermath. The graph 1 below shows this approach and places emphasis on internal control and advice real-time monitoring.