The document discusses strategic planning strategies for construction companies. It outlines that strategic plans typically include objectives, evaluating the company's volume and competition, and separate plans for each functional area. Effective strategies examine objectives, market share, competition, and introducing new technologies. Financial planning is also key to ensure sufficient funds. Internal and external appraisals analyze strengths, weaknesses, and performance gaps compared to other companies. The best strategy is chosen through evaluation and testing to increase profits and market share.
The document discusses strategic planning strategies for construction companies. It outlines that strategic plans typically include objectives, evaluating the company's volume and competition, and separate plans for each functional area. Effective strategies examine objectives, market share, competition, and introducing new technologies. Financial planning is also key to ensure sufficient funds. Internal and external appraisals analyze strengths, weaknesses, and performance gaps compared to other companies. The best strategy is chosen through evaluation and testing to increase profits and market share.
The document discusses strategic planning strategies for construction companies. It outlines that strategic plans typically include objectives, evaluating the company's volume and competition, and separate plans for each functional area. Effective strategies examine objectives, market share, competition, and introducing new technologies. Financial planning is also key to ensure sufficient funds. Internal and external appraisals analyze strengths, weaknesses, and performance gaps compared to other companies. The best strategy is chosen through evaluation and testing to increase profits and market share.
The document discusses strategic planning strategies for construction companies. It outlines that strategic plans typically include objectives, evaluating the company's volume and competition, and separate plans for each functional area. Effective strategies examine objectives, market share, competition, and introducing new technologies. Financial planning is also key to ensure sufficient funds. Internal and external appraisals analyze strengths, weaknesses, and performance gaps compared to other companies. The best strategy is chosen through evaluation and testing to increase profits and market share.
Strategic planning in the Construction industry may differ from company to company. The main aim of any given company is to achieve the objectives framed.
There are various strategies and policies evaluated by the industry, out of which a particular strategy is chosen as the final corporate plan. The final strategic plan will comprise of few objectives. For example, three basic strategies for the entire company, profitable statements and financial planning, and separate plans for each functional area.
Strategy is to
Frame an objective
Decide the volume of the company
Identify the competition in the industry
Objective Planning can be of three ways. Quantitative (For example, have a market share of 10% by 2025), qualitative (introducing the latest technologies and futuristic innovative measures to deliver quality construction), semi-quantitative (for example, to achieve and be in the top 5 list of this construction sector by 2025 by holding greater market share).
Financial Planning
Financial Planning is the main core strategy of the company which decides the overall budgeting and required finance of the company. The major cause of business failure is the lack of funds. Hence for a company to grow financially strong, by better profits on capital invested by shareholders which leads to better dividends increasing the trust over the company concluded better market share holder.
The benefits of Financial Planning are to frame a high budget backup for the future, provides authority to a particular activity, and control the capital investment, cash flow, revenue, etc.
The target required for a company’s corporate Performance is to improve the returns on capital investment and to have a better market share than now.
For example, the returns can be increased by 15 % and market share by 14%
The returns on Capital investment are Profit before tax divided by capital invested.
Market Share is the value of works by the company divided by the value of works in the market.
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Internal Appraisal
Internal Appraisal is the internal resources of a company. It shows the importance of signifying a company’s capabilities and its objective within the organization. Internal Appraisal of a company provides its strength and weakness of the company is a whole perspective. It signifies how the management has used its resources in a good manner.
For Example: consider a company’s turnover to be 7000000
Its Profit is 200000 and the capital invested is 2000000.
Hence,
Last year’s Profit Margin is 200000/7000000 = 2%
Last year’s Return on Capital Investment = 200000/2000000 = 10%
External Appraisal
External Appraisal is the analysis of the business environment by potentially comparing with the other companies in the same area using the published data, annual reports, and statistics published by the regional government.
The evaluated data using the surveys generates data forecasted which can be directly compared with the current productivity of the company.
The difference between the data derived and the current data gives the performance gap to be considered which can be used to develop the objectives further to achieve the long-term set in each specific department lagging to the goal set.
Identifying the strategies applicable and evaluating them such as
Comparing and deciding which strategy to be incorporated to rely on the best outcome, the strategy can undergo vigorous computer based testing for the financial analysis to discuss on the investment capital.
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The final corporate plan is introducing the ultimately chosen strategy to be involved in the company’s productivity to gain more profit and market share comprising
1) A general policy statement of the decided strategy
2) Plans for every single functional department to undergo changes 3) Financial statement documentation for the profitability, capital and flow of capital for the safety horizon.
Q2)A) Plant 1 Year 0 1 2 3 4 Initial Capital Cost 5000000 Maintenace Cost 50000 50000 80000 110000 Hire Income 1200000 1200000 1150000 1100000 Resale Value 3000000 Net Income 5000000 1150000 1150000 1070000 3990000 Present Worth 1 0.9174 0.8417 0.7722 0.7084
Present Worth of Net Income
Year 0 5000000 Year 1 1055010 Year 2 967955 Year 3 826254 Year 4 2826516
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Total Present worth of Net Income 675735
CR factor for 4years 0.3087 EAI 208599
Plant 2 Year 0 1 2 3 4 5 6 Initial Capital Cost 8000000 Maintenace Cost 75000 75000 75000 75000 75000 75000 Hire Income 1400000 1400000 1400000 1400000 1400000 1400000 Resale Value 6000000 Net Income 8000000 1325000 1325000 1325000 1325000 1325000 1325000 Present Worth 1 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963
Present Worth of Net Income
Year 0 8000000 Year 1 1215555 Year 2 1115253 Year 3 1023165 Year 4 938630 Year 5 861118 Year 6 4367898 Total Present worth of Net Income 1521618
CR factor for 6 0.2229
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years EAI 339169
It is adviced to use Plant 2 as its EAI is higher than Plant 1
Q2)B) Plant 3 Year 0 1 2 3 4 5 6 7 8 Initial Capital Cost 9000000 Maintenace Cost 120000 120000 120000 120000 120000 220000 270000 320000 Hire Income 1700000 1700000 1700000 1700000 1600000 1500000 1400000 1300000 Resale Value 6000000 Net Income 9000000 1580000 1580000 1580000 1580000 1430000 1280000 1130000 6980000 Present Worth 1 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.547 0.5019
Present Worth of Net Income
Year 0 9000000 Year 1 1449492 Year 2 1329886 Year 3 1220076 Year 4 1119272 Year 5 929357 Year 6 763264 Year 7 618110 Year 8 3503262 Total Present worth of Net Income 1932719
CR factor for 8 0.1807
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years EAI 349242
Q2)C)
Plant 3 is adviced to be used as its present worth of net income is higher than the other two options. In Future, if the value of Plant 1 and plant 2 changes then it is better to use plant 1 and plant 2. At present as the EAI. net income value , capital cost , maintenance cost is higher in plant 3 it is advicable to use plant 3. The no. of years in plant 3 is also more and there is possibility of its net income increasing . Whereas in Plant 1 if the no.of years increases , its performance might decrease with reference to the value derived .
Q3) Vincent contracting company 3A) Profit and Loss Account for the year ending 31 December 2021 Turnover 37,00,000 Cost 29,00,000 Overheads 2,40,000 Depreciation Marketing Expenses 41,000 Building depreciation per Depreciation 74,000 year = 30,000 Plant, cars and furniture depreciation per year Profit before interest 4,45,000 (2,500,000/5) = 44,000
Interest on loan (1500000 x 9%) 1,35,000 Total depreciation per year 74,000 Profit before tax 3,10,000 Tax (19% of Profit after interest) 58,900 Profit after tax 2,51,100
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Dividends (2p per share of 1,900,000
shares) 38,000 Retained Profit 2,13,100
Calculation of short term and long term
loans Loan (principal) 15,00,000 Annual loan instalment (loan and interest) (1,500,000 x 0.1558) 2,33,700
interest on loan paid by 30 Dec 2021 (1,500,000 x 9%) 1,35,000
Short term loan principal paid by 30 Dec 2021 (2,33,700 - 135,000) 98,700 Long term loan prinipal outstanding on 30 Dec 2021 (1,500,000 - 98,700) 14,01,300 interest on loan to be paid by 30 Dec 2022 (14,01,300 x 9%) 1,26,117 Short term loan principal to be paid by 30 Dec 2022 (2,33,700 - 126,117) 1,07,583
Long term loan principal outstanding on 30 Dec 2022
Current Assets Debtors = Certified by client - cash received = 3.4 - 2.8 = Debtors 6,00,000 0.6M WIP = Value - certified by Work in Progress 3,00,000 client = 3.7 - 3.4 = 0.3M Shareholders' Funds(Retained profit + Org. Shares) = Total Cash 11,56,300 20,56,300 Assets - Total Liabilities 2113100 = Cash + 2,996,000 - 2,039,200 Total Assets 41,52,300 Cash = 1156300
Current Liabilities Creditors = Cost - Cash paid Creditors 5,00,000 = 2.9 - 2.4 = 0.5M Short term loan amount 1,07,583 Marketing Expenses 41,000 Tax 58,900 Dividends 38,000 7,45,483 Long term liabilities
Long term loan amount 12,93,717 12,93,717
Total Liabilities 20,39,200
Total Assets - Total Liabilities 21,13,100
Ordinary Shares 19,00,000
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Retained Profit 2,13,100
Shareholders' Funds 21,13,100
Q3)B) Dividend Dividend share yield = Dividend per share Evaluates how investors Market Price per share have been rewarded over 0.02 time 2%
Dividend Cover Dividend cover = Earnings per share
Dividend per share Investment EPS = Net profit after tax 251100 Low ratio Ratios no.of ordinary shares 1900000 (1:2:5) suggests EPS = 1.321 its earnings are 6.6 low or too much is being paid out
Price Earning ratio = Market Price epr share =1 High ratio indicates a Earnings per share = 0.1321 popular share . High ratio shows that investors get 7.57 little for their money.
