Time Value of Money Main Formula
How would you define strategic planning? What are the differences between strategic and financial planning? What financial problems might an organization encounter when implementing their strategic plan? What is the breakeven point? What decisions does the breakeven point help an organization to make? What financial actions might an underperforming organization take to reach breakeven point? How would you explain the use of TVM in business? What considerations are made when calculating TVM? How can you use TVM to create your own, or someone else’s, retirement plan?
Strategic planning is when an organization envisions a certain way and the strategic method that the company uses to make that vision a reality. Strategic planning is long term. For example an organization may think of itself as the world's largest provider of a certain service. The organization must work to make that vision true. This would be ongoing, therefore it would be long term. The financial planning would be short term. It is specific and to the point. An organization may want to meet a certain goal for a quarter. Once that goal is met a new goal may be set. Strategic planning involves strategic management, while financial planning involves tactical management.
Some financial problems that an organization may encounter would be in the company is new to the industry a lack of funds could prevent improving the organization. Or if the organization sells more products that they could make, the company may have to invest in stocking in larger quantities, of which sometimes the company may not have enough funds to do so.
The breakeven point is when an organization falls in the middle. The organization's gains are equal to the organization's losses. The breakeven point allows an organization to look at what the company needs to do to improve revenue. This can be an eye opener for both a new company and a seasoned organization.
Different financial actions depend of the organization. For example, for a retail store, the company may choose to have a blow out sale to boost in customer base, and eventually increase profit. For an organization such as a grocery store, the organization may choose to cut hours for employees, or company downsize.
Time Value of Money Main Formula
FV= PV (1 + i )^n
- FV = Future Value
- PV = Present Value
- i = the interest rate per period
- n= the number of compounding periods
Time value of money is important in any organization. For example if an organization choose to do a project that cost 30,000 and after doing the project the company was left with 2,000, the smart thing would be for the organization to reinvest that money in a way that the 2,000 could make more money. If the money just sits, the 2,000 will lose value. If you can think back to 10 years ago, the dollars is not worth the same as it was 10 years ago and that same dollar will not be worth the same 10 years from now that it is worth today. The same is true with the money that the organization will make for doing the project. Investing the money made can bring forth huge changes for the company. If you think about celebrities. Actors/singers, it seems like everyone has other investments such as a clothing line, fragrance etc. That is a way to make your money grow. A dollar that just sits and does nothing is not really a dollar.
In a retirement such as 401k, many organizations are not encouraging employees to invest in employee stock purchases. This allows employees to invest his/her money in different shares to gain money. This also educates the employee on investing wisely.
Reference
Twigg, N., Fuller, J., & Hester, K. (2008, Winter). Transformational Leadership in Labor Organizations: The Effects on Union Citizenship Behaviors. Journal of Labor Research, 29(1), 27-41. Retrieved July 29, 2010 from EconLit with Full Text database.