IFM 4

15 flashcards · Other · by Daniel F.

Management Accounting
using accounting information inside the company to make better decisions and ensure the company's goals are met
Strategic Planning & Capital Budgeting
Strategic planning: process of setting goals and figuring out how to achieve them. accounting is crucial for this Strategy Formulation: Deciding what to do (e.g., "We should build a new factory in Vietnam"). Use budgets: short-term and long-term planning responsibilities and results Strategy Implementation: Making it happen and ensuring employees are working towards the goal. Capital Budgeting: process for evaluating and selecting large, long-term investment projects, like building a new factor…
calculating Net Present Value
NPV = (Present Value of Future Cash Inflows) - (Initial Investment) if NPV >= 0, the project is financially acceptable because it is expected to earn a return greater than or equal to the company's required rate of return (cost of capital). PV = SUM: Cash flow / (1 + i)^t
Multinational Capital Budgeting
Normal Capital Budgeting with additional risks Political Risk: The risk that a foreign government's actions will harm your investment. This could be extreme (nationalization of your factory) or more subtle (new taxes, restrictions on sending profits home, labour laws etc.). Economic Risk: The risk that the host country's economy will perform poorly, primarily through high inflation, which can erode the value of your cash flows and reduce consumer purchasing power. Financial Risk: The risk from…
Questions to answer when doing international performance evaluation
Which performance measures to use Financial Measures, Non-finacial measure, Balanced Scorecard How to classify the foreign operation / What to hold them accountable for Cost Center: costs Profit Center: revenues and costs Investment Center: revenues costs, assets How to separate the manager from the unit Responsibility Accounting: The principle that managers should only be evaluated based on the items they can actually control. What currency should profit be measured in Using the parent currenc…
How to measure performance for Performance Evaluation (PE) for MNCs for strategy implementation
has to be fair and effective Financial Measures: Traditional numbers from the financial statements (e.g., net profit, ROI, comparison of budgeted to actual profit). Nonfinancial Measures: Operational data not found in financial statements (e.g., market share, customer satisfaction, employee turnover). The Balanced Scorecard: A modern approach that uses a "balanced" mix of both financial and nonfinancial measures across four perspectives: Financial, Customer, Internal Business Process, and Innov…
How to classify the foreign operation based on the what their managers are accountable for, used for PE
Responsibility Centers: You can only hold managers accountable for what they control. Cost Center: Manager is responsible only for costs (e.g., a factory floor). Profit Center: Manager is responsible for revenues and costs (e.g., a sales division). Investment Center: Manager is responsible for revenues, costs, AND the assets used to generate them (e.g., the head of a whole subsidiary). ROI is the classic measure here.
How to separate the manager from the unit when doing PE
A subsidiary's performance might be poor due to factors the local manager cannot control Uncontrollable Items: These include exchange rate movements, new host country taxes, or transfer prices dictated by headquarters. Holding a manager accountable for these items is unfair and demotivating Responsibility Accounting: The principle that managers should only be evaluated based on the items they can actually control. A system perceived as fair is much more likely to be effective and helps the comp…
How to measure profit for PE
Choice of Currency: Should you evaluate the German subsidiary's profit in Euros or in the parent's currency (e.g., U.S. Dollars)? Using the parent currency introduces exchange rate variance Local Currency: Measures how well the manager is running the business in their local economic environment. Parent Currency: Measures how much the subsidiary is contributing to the parent company's consolidated results. This is what the parent's shareholders ultimately care about, but it includes exchange rat…
Corporate Social Responsibility (CSR) / Environmental, Social, and Governance (ESG) reporting
Reporting on a company's non-financial performance, specifically its environmental and social impacts and policies. Environment. Social Capital. Human Capital. Business Model and Innovation. Leadership and Governance.
Why do CSR / ESG
Stakeholder Theory: They do it because their stakeholders (customers, employees, communities, investors) demand this information. Legitimacy Theory: They do it to maintain their "social license to operate" and show that they are a good corporate citizen, thus legitimizing their activities in the eyes of society.
Who wants CSR / ESG information
Traditional Investors: good sustainability performance is often linked to long-term financial success. shows: efficient management (e.g., energy conservation reduces costs) better risk mitigation (e.g., good product safety), ability to spot new opportunities (e.g., organic food). Socially Responsible Investors (SRIs): These investors make it a primary factor. They use the information for: Negative Screening: Avoiding investments in industries like tobacco, weapons, or coal. Positive Screening:…
What drives CSR / ESG reporting
National Drivers: Pressures from within a country, such as cultural traditions, government regulations, or responding to a local crisis. International Drivers: Global pressures, such as the push for international standards (like the GRI), supply chain demands from large customers, and activism from international stakeholder groups.
Management Control when doing Strategy Implementation
Goal evaluate the implementation and effectiveness of strategy accounting is involved through operating budgets and performance evaluation Operating budgets provide a link between strategy and performance Effected by Organizational structure (ethnocentric, polycentric and geocentric) and culture Levels of control and delegation bureaucratic control cultural control
Comply-or-Explain approach to sustainability reporting
regulatory approach where a company must do one of two things for a given metric: either report its performance on it ("comply") or publicly state why it is not reporting on it ("explain"). It's a flexible form of mandatory disclosure.