Working capital: Definition and Management Techniques
Working capital is a measure of business liquidity, and it can be computed by subtracting current liabilities from current assets. Working capital is a significant element of the monetary coordination of an organization. Good monitoring of working capital would result in an enhanced market slice through ensuring a good supply of cheap products. Neglecting to monitor working capital would cause a great loss in market share and decreased profit margins as a result of increased funding costs.
We will write a custom Essay on Hewlett Packard Company Strategic and Financial Planning specifically for you
301 certified writers online
Effective monitoring of working capital includes practices and techniques that focus on managing both current liability and assets effectively. The techniques include cash management, inventory management, account receivable management, and short term funding. I would recommend utilizing cash management and short term funding techniques as they assist in monitoring float (Titman et al., 2011).
Capital planning and internal rate of return important to an organization
Capital planning refers to monitoring practice utilized in determining whether an organization’s long term investment is worth to be followed. Long term investment can comprise newly acquired or replaced machinery, plant, new product, and research development. The internal rate of return (IRR) is significant as it aids an organization in understanding what its rate of return is based on specific investments-the returns from an individual investment.
Net present value, initialed as NPV, determines future cash flow anticipated from individual projects, reduced to present value, and related to the original investment needed by the projects. If the reduced cash-flow projections are the same as or above the original investment, the projects are significant and should be pursued. Otherwise, the organization should consider another opportunity.
At the organization, much of the effort is utilized in creating value for the investor. However, the company uses equity value added (EVA) when selecting projects rather than market value added (MVA). EVA refers to a method of determining the wealth that is beyond the shareholder expected returns. The organization evaluates a monetary decision utilizing the EVA framework. In certain events, the organization chooses between the alternatives generating more positive EVA value (Keown et al., 2005).
Lease or buy a computer system
A lease can be described as a contract between a proprietor of buildings, machines, properties, and a person willing to utilize the assets for a defined period at an explicit fixed value. A basic reason why an individual or organization would decide leasing as opposed to buying is that the transfer of the right from the proprietor vs. the lessee. When an individual or organization hires, they access the rights of utilizing the item provided that the contract is up to date. Another reason is the NPV – a lease may save on cost that sometimes offset the less positive NPV of buying. Regarding the steps, an individual or organization would require calculating the NPV to purchase. If the NPV is positive, then determine the net added lease (NAL). If the NAL is not negative, it implies that NPV cost-benefit over ordinary acquiring is high, and then the computer needs to be hired (Mayo, 2012).
Relationship between strategic and financial planning of Hewlett Packard Company
Hewlett Packard (HP), a technology corporation aimed at developing a platform for ordering individualized computer and computer accessories for their clients. The basis of their business was their capability of maintaining direct relationships with their possible clients and that the corporation has all the time had a competitive edge. HP’s strategy led to the removal of the role played by a middle man because direct costs and other transaction techniques were initiated via different resources, the most common being the e-business. Operating as one of the lowly priced leading corporations in an always technologically evolving sector, HP has succeeded in maintaining its position through continuous creativity, elevated ethical levels, a re-examination of strategic practices, and meeting its monetary goals (Hewlett-Packard Annual Report, 2011).
Strategic and monetary scheduling jointly is seen to be crucial measures for the success and development in Hewlett Packard. The focus of strategic scheduling is in keeping in mind HP’s vision policy and in creating long-term objectives and/or goals that can be attained within a definite period. The long-term objective is then split into smaller attainable units and handed over to the dedicated staff. Strategic rescheduling relates to financial scheduling as the latter guarantees the availability of enough funds budgeted for the continuation of HP’s goals (Keown et al., 2005).
Strategic planning initiative for Hewlett Packard
As in the situation of Hewlett Packard, advocating for alliances and strategic affiliations has been an important venture policy and strategy (Hewlett-Packard Annual Report, 2011, p. 19). Organizations are constantly planning to leverage skills and talents with a view of achieving an optimum return. Regarding environmental retention, HP management is highlighting the gains from these alliances to design creative alternatives. Stakeholders – whether not-for-profit associations, businesses, states, or intrinsic company departments – each have special skills and knowledge that are beneficial to address concerns of sustainability. The ongoing attempt to sustain business policies has led to a chance for new alliances among stakeholders (Hewlett-Packard Annual Report, 2011, p. 27).
All through the renovation procedure, Hewlett Packard has aimed at developing intrinsic relations and alliances with a view of leveraging the current relationships in the corporation. For instance, active relations have been developed with working place Solution, national relationships, global e-platform, and promotion so as to adapt the emerging strategies effectively. These relations and/or alliances are crucial in achieving difficult business objectives (Hewlett-Packard Annual Report, 2011).
Keown, A., Martin, D., Petty, W., & Scott, D. (2005). Financial Management: Principles and Applications. Upper Saddle River: Pearson Education, Inc.
Mayo, H. (2012). Basic finance: An introduction to financial institutions, investments, and management (9th ed.). Mason, OH: Thomson.
Titman, S., Keown, A., & Martin, D. (2011). Financial management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.
Hewlett-Packard Annual Report. (2011). Web.