Question 2 – Learning Outcome 2 (20 marks) (a) RDH plc has been suffering from a three-year downward trend in profitability, and the first comparison that it should analyse is how it sets corporate business plans. Plans can span small to large spaces of time, however with RDH the length of dwindling profits is in the middle category of tactical planning of around one to three years at a time. However it must be noted that concentrating on just mid-term plans is not the best route to take. Business plans will need context and objectives, and these cannot be set without future goals or plans. RDH plc should compare how it’s strategic, tactical and operational plans are formulated, and enacted upon. A control method that RDH plc should …show more content…
If the management accounts are properly analysed RDH plc can spot trends, patterns, and potential pitfalls before they happen. RDH plc could plot its accounting history against that of another successful company in the same industry, and compare how it has made profit when RDH plc has made a loss over the last three years. RDH plc will be able to learn lessons from analysis of its own records on expenses, revenue, and other operational costs – and will be able to successfully forecast for the future leading to potential profits …show more content…
Understanding what is a ‘favourable’ variance or ‘unfavourable’ variance in the context of the market RDH plc operates in will help the company know how to avoid certain detrimental aspects of budgeting such as inadequate pricing of stock, operational inefficiencies, or poorly planned shrinkage of staff; and nurture successful variances and integrate them into the day-to-day running of RDH plc. (b) RDH plc could utilise a series of key performance indicators (KPIs) to ensure better controls of profitability in the future: Minimising debt RDH plc needs to chase its debtors in order to lessen debts as a current asset and increase cash flow: • A strategic debt management team need to be created, they then can decide on the appropriate amount or levels of debt per client, class of insurance, or business area can withstand; • Credit checks for current or prospective clients should be completed before business is transacted in order to offer an appropriate level of credit, which would be in line with the risk appetite that RDH plc has agreed on – this will also save time chasing potential late payment debtors in the future; • A debt management unit (DMU) of advisers could be created to complete collections and chase debtors should payment not be