Managerial Accounting Successful Performance Management

Question: Describe about the Managerial Accounting for Successful Performance Management. Answer: Introduction: The report is mainly conducted to depict the current financial position of May Airlines by evaluating its 10 years of performance. In addition, the report evaluates the six revenue earning routes, which is been used by the airlines company to support its activities. Furthermore, in the assignment has successfully evaluated and provided relative information regarding the discontinuation of routes, which do not provide relevant revenue to support the expenditure of the company. Likewise, the report also evaluates key financial areas, which can be helpful in portraying adequate capital budget. The assignment also evaluates the intention of reducing long-term debt for continuing the modernisation programmes. Lastly, the report evaluates the reliance of CEO in using financial ratio and budgetary control process for identifying the possible risks. The report also critically analyses the use of management accounting function and ethical issues if the company expands its faction in more coun tries. (a) Evaluating the six revenue-earning routes of May Airlines: Figure 1: Depicting revenue earnings of different routes (Source: as stated in the case study) With the help of figure 1, the overall revenue that is been generated from different routes could be effectively evaluated. The home country revenue has relatively declined from 2016 to 2015 by 5%. This indicates the low demand among potential customers regarding service provided by May Airlines. However, relative increase in revenue generated from routes like Asian, Europe and Middle East, and Australia and New Zealand is provided higher revenue. Weygandt, Kimmel and Kieso (2015) stated that improvement in high yielding routes could help airlines industry to increase their overall customer reach and generate high revenue. However, Needles and Crosson (2013) argued that reducing the overall cost could in fact help airlines companies to generate gains from low revenue providing routes. Besides, the percentage changes in revenue from the above-portrayed routes have mainly helped in improving its overall profitability. In addition, the lowest revenue is mainly generated from route Africa and South America. The percentage change in revenue is 100, as the route has not provided any revenue for 2016 in comparison from 2015. Warren, Reeve and Duchac (2013) mentioned that declined revenue could mainly hamper working capital of the company and in turn reduce its cash reserves. Likewise, relatively 5% decrease in revenue is identified from home country route, which is relatively affecting profitability of the company. Furthermore, the Australian and New Zealand route has mainly declined its revenue by 0.2% in comparison from 2015. The above-identified routes have been using huge working capital and investment but are not providing relevant revenue to support its expenditure. This increased expense has mainly declined the overall profitability of the company as deputed in its financial statement. Moreover, a decrease in net profit of the company from 2015 to 2016 is seen at 171.36%. This relative decline i n profits is mainly identified as the low revenue generated from different routes. Delia, Adriana and Coman (2014) argued that decline in expenditure might mainly help in improving the overall profitability and cash reserves of the company. Figure 2: Depicting profits earned by May Airlines (Source: as stated in the case study) Figure 1 mainly helps in portraying the revenue generation capacity of May airlines from 2012 to 2016. The profits of the company have mainly declined from 2013 onwards as the relative revenue from different routes declined. From the above figure, the total expenditure of the company has mainly increased more than its revenue. The low profits yielding route could mainly reduce the overall revenue generation capacity of the company. However, the total number of available passengers capacity of the flown routes has slowly increased, which in turn raised the total expenditure conducted by the company. In this context, Maher, Stickney and Weil (2012) stated that airline companies mainly need huge working capital to support the changing oil prices. The low profit yielding routes could mainly affect the following attributives of the company. Reduction in net profits: The profitability of the company declined irrespective of the reducing oil prices, which mainly indicates the high operational expenses conducted on routes. The high operational expenses and fixed costs have mainly reduced the profits, which is needed to maintain the level of activity. On the contrary, Crosson and Needles (2013) criticises that total reduction in net profits could be reduced by implementing costing measures, which might in turn help in reducing the overall expenses of the company. Reduction in working capital: The reduced profits and increased expenditure might also affect the current working capital of May Airlines. The reduction in profit as seen in the above figure has mainly recued the tangible asset per share of the company. On the other hand, Baiman (2014) mentioned that due to the decline in oil price seen the airlines companies have relatively boosted their profitability. Reduction in return in shareholders fund: Furthermore, the reduced revenue from routes could also hamper the overall return on shareholders funds, which in turn might affect its share price. Thus, declining share price might affect the investment capacity of the company, which in turn could not help in maintaining the level of working capital. In this context, Braun, Tietz and Harrison (2013) stated that with the help of relative ratios investors are able to successfully depict the return, which could be generated from investments. (b) Evaluating the decision to discontinuing the revenue losing routes: The overall strategic decision that is been made to discontinue the operations in the three divisions. The discontinuation of Australia New Zealand and South American divisions could mainly reduce revenue of the company. Furthermore, the discontinuation of operation might reduce the expenditure but also decrease its overall revenue that might be generated from these routes. Garrison et al. (2015) mentioned that discontinuation of operations due to losses incurred from intense competition might reduce market share and hamper customer base of the company. On the contrary, Malhotra (2015) criticises that continuing the non-profit operations might mainly hamper capital reserves and reduce current assets of the company. The following attributes could be discounted from the current situation. Discontinuation of least revenue generating operations: The discontinuation of the operations might mainly reduce the overall profitability and market share of the company. Moreover, from the case study analysis the change in revenue percentage can be effectively detected. Furthermore, the low profitability is mainly generated from route Africa and South America. The change in revenue is mainly 100 %, which indicates that there is no scope of improvement in the route and closing down the route could help in decreasing the overall expenditure. This decreased expenditure might mainly help in improving the overall profitability, which is been decreasing since 2014 fiscal year. According to Aly (2016), conducting effective research mainly helps in detecting the overall expenditure, which could be helpful in improving the overall profitability of the company. On the other hand, Reider (2016) criticises that companies utilises the breakeven point to maintain the level of competitiveness in the market.sss Using zero based budgeting system: The May airlines could use the zero based budgeting system to allocate its financial resources. In addition, the company with the help of ZBB is able to improve the overall profitability by reducing the excess expenditure on its unproductive activity. In this context, Wang and Wang (2016) stated that companies with the help of zero-based budgeting are able to improve their profitability by reducing the overall expenditure of different activities. On the contrary, Vidal et al. (2016) criticises that ZBB mainly reduces the overall liquidity in operations, which in turn might not help in maintaining the flow of operations. Moreover, the overall ZBB could be used in Home county route and Australia New Zealand route for reducing expenditure and improve revenue generation capacity of the company. The method could also help in reducing the excess expenditure, which are been conducted by the company in 2016 fiscal year. Likewise, the company could also use the effective ZBB in all its six revenue-generating routes for decreasing the high expenditure incurred from operations. Likewise, the companys considerable amount of capital expenditure could be maintained from ZBB approach. However, use of ZBB could help in reducing the excess expenditure is been conducted by May Airlines for maintaining the level of productivity in these long revenue routes. Delia, Adriana and Coman (2014) mentioned that airline companies with the help of ZBB are able to reduce the unproductive activities, which does not contribute in the revenue generation process. Implementation of low cost carriers: The three revenue losing routes of May Airlines mainly occurs due to the stiff competition, which is been provided by the low cost carriers of Hong Kong and Australian airlines. Furthermore, the revenue is mainly lost due to low pricing strategy, which is been used by the competitors and cannot be implemented by May airlines. Moreover, the management could successfully buy low cost carrier airlines for only the revenue losing routes, which in turn might help in maintaining the level of competition and decrease its total expenditure. Maher, Stickney, and Weil (2012) cited that with the help of low cost carriers, airline companies are able to increase number of passengers in one flight, which in turn help in reducing their costs. The use of low cost carries in revenue losing routes might mainly help May Airlines to maintain the level of competitiveness and generate the required revenue to support their operations. Furthermore, the low cost carries airplanes could in fact reduce expenditure on fuels, travelling and overall cost, which are being incurred by the company to maintain operations in home country, Australia New Zealand and South American divisions. Nevertheless, Crosson and Needles (2013) argued that capital expenditure without adequate research might hamper capital exposure of the company and in turn reduce its overall profitability. Critically stating the use of ZBB and low cost carriers: The discontinuation decisions could not help the company to promote its brand name and increase its market share. However, the company could use both ZBB and low cost carrier for improving its revenue condition. The South American division could implement low cost carriers services in their operations to generate higher revenue. Furthermore, the home country and Australia New Zealand division could implement ZBB method for reducing the expenditure. Implementation of both the plan could effectively help the company to maintain the level of productivity and brand presence in the division. Braun, Tietz and Harrison (2013) stated that implementation of effective strategy mainly helps in reducing excess expenditure, which is incurred from operations. (c) Identifying key areas for allocating financial resources: The major areas have been identified for allocating financial resources that will further help in attaining an increased return for the companys shareholders. Efficient allocation of financial resources by understanding their overheads adequately will help May Airlines in attaining greater control on their operating expenses (Blanchard et al. 2014). Financial resources must be allocated in advancing the low profit generating routes for adequate profitability as well as financial returns. Financial resources allocation must be decreased to lessen huge working capital investment in its routes those are generating less profits (Bierman and Smidt 2012). Financial resource allocations must be considered to increase the sustainability of its three profit loosing routes namely domestic country, Australia, South America and New Zealand (Elsas et al. 2014). Significant amount of capital expenditure along with management costs should be allocated to enhance the efficiency of the airlines of these routes, dispose services of all these divisions and to convert all its unprofitable airlines to low cost carriers that will increase the revenue generation from these routs along with increasing May Airline Companys shareholders return. (i) Identifying and analysing the factors influencing capital budgeting decisions: Capital budgeting decisions is not a routine and not a temporary commitment of funds. It is deemed an occasional as well as extended term commitment (Ahmed 2013). The factors that are considered to be influencing the capital budgeting decisions and that is deemed necessary for May Airlines in making effective investment decisions are discussed below: Accessibility of required funds Capital structure Decisions of the management Methods of accounting Taxation policy Terms of lending of May Airlines company Working capital Capital Return Requirement of the project Government policy Earnings The projects economic value Several aspects that affect the capital budgeting decisions of the airline company are the profit factor that must be considered from the extended term viewpoint (Bialowolski and Weziak-Bialowolska 2014). At the same time, it also will balance this particular aspect with associated goals of May Airlines namely stability, growth, avoidance of risk and market price of the companys stock. The major factors that are considered to affect the capital budgeting decisions of May Airlines are: Nature of companys business: The business decision type that is taken significantly relies on the business undertaking nature. In certain situation, a quick and prompt decision on the fixed investment is essential for avoiding disruption in offering service by May Airlines. On the other hand, in certain cases a properly regulated investment policy can remain within the companys business for an extended period (Ghahremani et al. 2012). Market evaluation and sales forecast: The management of May Airlines should forecast on long range and short-range market and sales prospective. Increasing competition and the consumer behaviour within the market must be understood by May Airlines. This is for the reason that if the capital budgeting decision is taken based on inappropriate market evaluation might hamper the profitability of the company (Dellavigna and Pollet 2013). Working Capital: Anticipating the needs to maintain adequate additional working capital and such requirements might be different for several capital budgeting decision alternatives. At the time, the costs of the working capital are taken into account it is likely that an alternative profitable project is plunged from the budget (Goodman et al. 2013). Source of funds: Capital structure is deemed to determine the claim against May Airlines. Whenever the management of the company decides to take a decision on new investment proposal, it also decides the capital sources and capital structure, which is essential for the company to have (Johnson et al. 2013). There are two major ways in financial the assets of May Airlines Company- Through gaining funds from the gross ranged earnings or from shares sales that enhances the ownership claims, and Gaining funds through borrowing and accepting long-term debts that enhances the creditors claim. (ii) Evaluating the intention of management to reduce borrowing through long-term bank loan and external lenders: The management of May Airlines has intended to reduce excess borrowing from extended term bank loan and several external lenders to carry on with the modernization programs (Shandra and Shor 2015). May Airlines Company will have to develop several strategies in decreasing its borrowing through accepting long-term debt from bank and external lenders. Such strategies include: Increasing profitable sales: May Airlines must realise all its costs and can increase their sales and margin volume without boosting the overhead expenses that will further increase the bottom line of the company. This strategy will increase the revenue generated from sales that can be used efficiently to pay back debt taken from bank or external lenders (Shandra and Shor 2015). Employees should be asked to decrease overhead: The employees of May Airlines are the ones those know the areas in which the overheads, materials and time are wasted. After identifying such areas of, the overhead cost must be reduced considerably each month that will in turn decrease the accounts payable every month, increase the companys bottom line as el as equity (Shandra and Shor 2015). Restructuring debt: This strategy can help in increasing disposable income and cash. The suppliers must be asked to extend terms that will help in gaining extended time to pay the bills and decrease the airline company; monthly payments. Moreover, if the interest rate is observed to e high after taking loan that it should be restructured to decrease the rate of interest (Goodman et al. 2013). This strategy will help in decreasing the interest expenses and will further increase May Airlines equity and bottom line. Cash flow budget: The cash flow budget that indicates the fund flows into and out of the company must be prepared for all alterative investment projects being taken into account. Its evaluation might affect fixed investment decision as it might indicate that a change in time is essential to give place to some more essential expenditure (Goodman et al. 2013). (d) Depicting the significance of regular reporting system: (i) Providing relevant advice to the MD regarding efficiency of financial ratio and budgetary control: In this particular question, it is advisable to Managing Director in using financial ratio analysis as well as control over budgetary actions for coordinating with the Group. In other words, these new CEO should develop at basic skills for financial management (Ward 2012). It expects from other organization in managing the finances in case of asking in trouble condition. Business owners should constantly evaluate the performance for the concerned company in comparing it with historical figures (Horngren et al. 2013). It is with industry competitors for attainment of successful business for other industries. It involves complete examination for checking on the effectiveness of company. It looks for giving emphasis upon attainable number such as sales as well as total assets and profits (Strumickas and Valanciene 2015). It conducts assumptions for lining up the financial statements and accessible at the same time. Ratio analysis is one of the most beneficial tools especially in financial analysis in making Brexit decision in UK. This help in implementing plans for improving profitability, interest coverage, as well as financial structure and liquidity (Soin and Collier 2013). This ratio analysis depends upon past performances in leading towards indicators in potential problem areas. This help in compare Brexit decision in financial figures for specified time and trend analysis. This trend analysis adjusts with the Brexit decisions for practicing accordingly (Parker 2012). There are various considerations for remaining aware for comparing rations from one financial period to other for making Brexit Decisions. In order to make comparative analysis for Brexit decisions in making financial statements for given period in making an allowance for changes (Horngren et al. 2013). It is in accordance with accounting policies. For comparing business with other industries it, help in allowing the material differences in accounting policies based upon industry norms (Kaplan and Atkinson 2015). It is in comparing ratios for a given fiscal years for inquiring regarding accounting policies. It takes into consideration accounting methods for wide variety of reported figures at the same time. It helps in determining the calculated ratios for making the adjustments on the balance sheet or income statement like non-recurring items as well as inventory adjustments (Horngren et al. 2013). Financial planning works alignment with strategic as well as business plan for identifying financial resources for obtaining and developing resources in achieving goals in given course of action (Dobroszek and Szychta 2015). In other words, Financial Planning results in conducting relevant as well as realistic budgets such as addressing in the given topic on Brexit decision-making. Therefore, Managing Director should consider business planning for each of the given products and services for a given business organization (Horngren et al. 2013). Managing with cash flow operations is very important for any business organization as indicated in the financial statement (Chenhall and Moers 2015). The major purpose of managing cash flow will ensure possessing enough cash for paying bills. This mainly aims at managing cash flow with examining cash flow statement as well as cash flow projections. Managing of budget is important for spending as well as earning for given period. Several amounts are categorized in accordance with business type activities. In other words, Managers should take into consideration aspects like making the sales projections for undertaking major initiatives. These are majorly comes under operating budgets for given time (Soin and Collier 2013). Depicting the change in management accounting function and ethical issues if expansion is conducted in different countries: This question discuses on the change in management accounting function as well as ethical issues for expanding purpose from the case on Brexit decision-making activities (Dobroszek and Szychta 2015). Voters voted in favour of Brexit meaning British exit from EU (European Union). This reveals involvement of British as well as European Leaders for negotiating the given terms for Britain departure in given time. In other words, Britain exit affects for British Economy as well as immigration policies. It takes more time for understanding full consequences for expecting changes as far as possible (Chenhall and Moers 2015). Britain vote for leaving European Union not legally binding for theoretical aspects for turning into operations for future analysis purpose Changes in Management Accounting mean Treaty on European Union for establishing procedures for Member State for withdrawing from European Union (Dobroszek and Szychta 2015). It means Member State for notifying European Union for its withdrawal as well as obliges for European Union in trying foe negotiating withdrawal agreement with given State. Britain Leave vote for representing under formal notification in an overall manner EU Member countries meets for a summit as scheduled for specified time. Members present in the British officials for triggering terms of European Union membership (Strumickas and Valanciene 2015). In this particular case, Britain may be able for negotiating access for European market for favourable access to countries. British Prime Minister David Cameron shows no interest in holding a vote for Brexit. In the year 2014, he faces some of the growing pressure in case of populist right over immigration for Britain European Union membership (Dobroszek and Szychta 2015). This reveals mollifying the dissenters for its own party for rising in UK Independence Party as promised by holding referendum by Conservative Party. Brexit changes the United Kingdom aspects in basic ways in major countries such as England, Wales as well as Northern Ireland and Scotland (Chenhall and Moers 2015). For a given time, uncertainty is from Britain future relationship with European Union considering as largest trading partner for pushing UK into recession (Dobroszek and Szychta 2015). It has been noticed high volatility market in real terms. In other words, volatility reflects upon market condition for severe consequences for the given months. Britain prospects of negotiating reveals favourable deal for European Union. European Union for deciding upon striking hard bargaining for discouraging other countries from leaving EU (Chenhall and Moers 2015) Most of the time the above case creates for serious issues relying upon business based in UK. It is for production in UK for conducting same safety standards as well as environmental standards allowing for selling in European Union (Soin and Collier 2013). UK leaving European Union cannot be considered as selling in the European markets by facing small tariff for getting set of safety certifications. In this particular situation, it renders controversial achievements for European Union in establishing principle of free movement in and among European countries (Strumickas and Valanciene 2015). Therefore, citizen of European country for gaining unfettered for living and working anywhere in European Union Conclusion: The overall study is been mainly conducted to represent the significance of capital investment decisions, capital budgeting, gearing, contribution, financial ratios and budgetary controls. The report evaluates the revenue generating routes and detects the three revenue-losing routes, which could be evaluated by the firm. The revenue losing routs such as Africa and South America rout could be discontinued, as there is no revenue generated from the operations. In addition, the factors that could influence capital budgeting decisions of airlines are evaluated in the report. Moreover, the study also critically evaluates the intention of the management for reducing its current long-term debt with modernisation programs. The study also provides relevant data regarding the reliance of financial ratios for detecting possible risks that might be faced by the company. On analysis, it has been noticed that the companies for understanding the profitability position use financial ratios. It is th e responsibility of managers in gaining skills and knowledge for handling the employee base in business organization. Change in Management accounting and ethical issues are widely discussed in accordance with Brexit decision making in United Kingdom. Reference: Ahmed, I.E., 2013. Factors determining the selection of capital budgeting techniques.Journal of Finance and Investment Analysis,2(2), pp.77-88. Aly, I., 2016. COMPARISON OF STUDENTSPERFORMANCE IN A MANAGERIAL ACCOUNTING COURSE TAUGHT IN BLENDED LEARNING, TRADITIONAL CLASSROOM, AND ONLINE SETTING.QRBD, p.325. 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