Offer investors the highest expected rate of return - Free Essay Example

Sample details Pages: 8 Words: 2401 Downloads: 4 Date added: 2017/06/26 Category Finance Essay Type Argumentative essay Did you like this example? INTRODUCTION The main aim of this case is to find the portfolio that will offer investors the highest expected rate of return for any degree of risk they are willing to tolerate. Extra returns are needed by the investors for taken a higher level of risk and covariance measures the process in which the returns of two securities vary with each other. Sandra is a new investor; she needs the basic idea on risk-return tradeoff and on portfolio management from Bolton in order to make the right investment. When investors are considering investing in a security market, the problem they face is deciding how much to invest or hold and choosing the best security which depends on the characteristic of risk-return of different individual securities. RELATIONSHIP BETWEEN RISK AND RETURN People invest their money in order to have good income which will help them in the future; this investment involves risk and return. The risk and return are the process through which investors makes decision. The inv estment return is the compensation given to investors for the time spends waiting and the worries based on the risk of an asset invested. (Brealey,Myers Marcus, 2009,p.317). Investors uses the historical record to measure the current opportunity cost of capital which is the return that shareholders gives up for investing in a project and probability is used to estimate the possible situation which will occur within the period of investment. (Roses,Westerfield Jordan,1998,p.367). In appendix A, the risk premium serves as the compensation to investors for investing on that particular asset. When comparing individually, the utility-company is the best decision based on their coefficient-variation since it has the lowest value in units i.e. having 2.65% of risk, 9.7% of return and 0.27 of coefficient-variation. Then High-tech-company has 21.91% of risk, 10% of return and 2.19 of coefficient-variation. Counter-cyclical-company has 12.07% of risk, 5% of return and 2.41 of coeffici ent-variation. Therefore expected return depend on the risk involved and Investors uses the past record to estimates the future using the method of arithmetic average, variance, standard deviation since he assume that the future will be like the past. A good investor needs to choose a project which has higher return and lower risk but when its difficult to decide between two asset, then coefficient-variation may help. HOW BETA RELATES TO REQUIRED RETURN Pls draw another chart of beta in your tutorial paper at the back. figure1 Any potential investor that wants to get good return with better risk when investing on a market portfolio should able to understand the meaning of beta because it measures systematic asset or non-diversifiable risk in order to get a high return. Beta is the sensitivity of the return of stock over the variety in market portfolio return. (Brealey, Myers Marcus 2009,p.340). It is the measure of risk on the portfolio of an individual stock a nd it account for both stocks for standard deviation and correlation among other securities available in the market.(levy Alderson,1998,p.307). The market risk premium depends completely on the beta in order to get assets risk premium. Therefore beta is an important determinant of an asset expected return in order to eliminate a systematic risk which cannot be diversified. An average beta is 1.0, risk free rate is 0. Aggressive-stock shows that its riskier than the market portfolio but provides larger gain while Defensive-stock shows that stock will fluctuate less than the market which is relatively safer but provides lesser gain. Also based on the calculation in appendix C, the beta for the individual asset are Utility-company is 0.529, High-Tech-company is 0.207 and counter-cyclical-company is -0.356 showing that all the individual asset are on defensive-stock. The formula is Beta j = Covariance mj / rm. The company with the highest risk is Utility-company and the lowest ri sk is Counter-cyclical-company. Composite index is preferred more than index fund because is a standardized combined indexes which provides useful measures statistically in overall market performance. Also the expected return is more than the index fund and the chances of risk is very low compared with index fund as shown in appendix B, i.e. having return of 18.70% and risk of 4.96% while index fund has only 8.40% of return and 10.72% of risk. WHY WE HAVE TO DIVERSIFY OUR INVESTMENT Since investors cannot be able to reduce their risk and return of two assets based on each scenario performance then it is better to diversify in-order to balance the risk and return of any two assets. Diversification is a principle designed which reduces the variability of risk by spreading the market portfolio across many investment.( Brealey,Myers Marcus 2009,p.323). Its the distribution of investors saving among different securities and it reduces investors overall risk of their holding either as losses in one investment or partial profit attained in another investment. (Lee, Finnerty Norton,1997,p.39). Therefore diversification is the spread of risk and return of two or more assets with different characteristics. In the calculation shown in appendix D, the right choice is Utility-company which its risk is 2.65% and return is 9.70% while the risk for Counter-cyclical-company is 12.07 and its return is 5% but needs to be diversified in order to balance the scenario performance of both companies. Diversification is applied by Investing 75% in utility-company and 25% in Counter-cyclical-company which gives a portfolio return of 8.53% and 1.41% of risk. The portfolio risk of a stock depends on whether the return tends to vary or against the return of other portfolio asset. Not to put all eggs in one basket. Sandra diversify primary to reduce unnecessary risk in order to maximize the present-value of her lifetime consumption and diversification reduces risk by de creasing the amount of uncertainty of return without reducing expected return. The Possible situation which can affect the stock price may be as a result of macroeconomic factors. DETERMINING UNDERVALUE AND OVERVALUE FROM SECURITY MARKET LINE Figure2 Any investors who those not want to lose his or her investment in the market suppose to understand what SML means in order to make the right decision. Security market line shows the standard for investing different fractions of market fund based on the risk and expected return.(Brealey,Myers and Marcus,2009,p.349). SML signify or establish a linear relationship between beta and the expected return for all the assets.(Levy and Alderson,1998,p.319). In figure2 above calculated in appendix C, the individual stock at Beta 0.529 offers 12.24% expected rate of return, risk free rate of 5% and market risk premium of 13.7%. No investor will buy when the stock offered a lower rate of return. The price will drop if nobody decides t o hold the stock which is a better buy for investors. This will lead to a higher rate of return and the expected return will move to 12.24%, therefore at this point the capital assets pricing model holds at the expected return and the price. The Utility-company is overvalue because is below the SML line while High-tech-company and Counter-cyclical-company is undervalue because is above the SML. The Capital Asset Pricing Model helps to show that the expected rate of return of all securities and portfolio lie on security market line and also expected rate of returns depend completely on the beta. The CAPM is graphically represented by SML. EFFECTS OF INTEREST RATE IN A DIVERFISIFIED PORTFOLIO Investors needs to know what it means when the rate is high or low and focusing very well in the interest rate movement in order to make reasonable decision. Capital Asset Pricing Model is described as the relationship between return and risk which states that the expected risk premiu m on security is equals to its beta times the market risk premium.(Brealey, Myers Marcus,2009,p.348). It explains the exact linear equilibrium relationship between the beta and the expected rate of return of individual assets and portfolios. (Levy Alderson,1998, p.322) Based on the definition of diversification explained previously, if Sandra choose a well diversified portfolio, these will be as a result of when the stock more than 12.24%, then diversified investors will like to buy more of that stock which will automatically increase the price and the expected return will decrease until it is at the level of CAPM. CAPM is a recognized instrument or techniques which help to adjust risk discount rate through the analysis of portfolio i.e. risk are measured in beta factors and these measures the sensitivity of its return on a quoted shares based on the market movement as a whole. INVESTING ON FIXED-INCOME SECURITY Any Potential investor like Sandra who those not know whe n the investment is defensive or aggressive should better put her money bank on a fixed income security. A project NPV or cost of capital is the amount which is expected to multiply the wealth of current shareholders of a firm and the rules is that if the proposed projects NPV is positive, then invest but if not dont invest. (BodieMerton,2000,p.168). The project cost of capital is the acceptable minimum expected rate of return on a project with its risk given. (Brealey, Myers Marcus,2009,p.357). If Sandra prefers to put all her money in fixed income securities, then the cash-flow of the project needs to be calculated. If for example the future interest rate of return is 18%, risk free offers a return of 5% and expected market risk premium is 13.7% with zero beta: r=rf+B(rm-rf), = 5+(0x13.7)= 5%, then since the expected return is 18% while the cost of capital is 5%, Sandra should go ahead but if compared with the exact project return of 18.7% company cost of capital, then th e project is not worthwhile. Furthermore, in the cost of capital, if the market portfolio has the same risk with the project and the beta is 1.0, it means that its still worth investing on even though the project appearance is less attractive. GROWTH RATE A HOT TIPS FOR UNDERVALUE STOCK A hot tip is an important idea given to new investors like sandra in order to monitor its investment knowing whether it is in the right track or not. Growth stock: when firm stock are repurchased, the stock are considered to be undervalued, which means that the market is less than the present value of future stock expected cash-flow and this decision is concluded when management uses Present Value evaluation models. (Levy Alderson,1998,p.478). When the future investment opportunities which are expected to yield a rate of return is greater than the required risk adjusted rate of the market.( Bodie Merton,2000,p.242). Investors buy growth stock and income stock expecting to have capital gain s and cash dividends in the future.(Brealey, Myers Marcus,2009,p.201) Therefore hot tips regarding undervalue stock is an identified movement of stock growth knowing up-to-date and valuable information on when to buy stock which guarantees successful trading on the stock market. This superior knowledge and strategy makes investors like Sandra to have confidence, secure and buy right stock at the right time with excellent return not minding what the market will be in the future. DIVERSIFYING EQUALLY IN THE STOCK OF TWO COMPANIES Diversifying equally in the companies is a good choice for Sandra so as to balance her risk and return between the companies which can sometimes eliminate risk completely. the calculation shown in Appendix E, it explains that High-tech-company has higher return of 10%, higher risk of 21.91% and beta of 0.207 while counter-cyclical-company has lower return of 5%, lower risk of 12.07% and beta of -0.356, this is difficult to choose without beta but using the beta method will now help Sandra to make the right decision. When Sandra invests her money equally on the two companies through diversification then the expected return will be 7.50% and the risk will be 6.63%, these shows that when two companies are joined together, the volatility will decrease as a result of the performance in each scenario. Finally, the inverse relationship between the two companys return mean that adding Counter-cyclical-company in all the High-tech-company stabilizes the portfolio returns. The Counter-cyclical-company reduced the return performance of the High-tech-company but improving the worst-case return. Therefore every investor cares about its risk and expected return of their portfolio assets. INVESTING 70%:30% IN A DIVERSIFIED PORTFOLIO An investor that invested with index-fund with 70:30 is also a good choice except that the risk is very high compared with 50:50 above. Index fund is an investment collective scheme or rules set which is held constant not minding the movement of the market. it is usually an exchange trade-fund or mutual fund constructed with a portfolio to track the market index components. The calculation shown in appendix F, explains that High-tech-company has return of 10% and risk of 21.91% while index fund has return of 8.4% and risk of 10.72%. To stabilize the risk, the two components will be combined through diversification using 70:30 respectively for High-tech-company and index fund and the result shows a return of 9.52% and risk of 18.54%. This combination of 70%:30% is good but using 30%:70% is much better as shown in appendix G. The returns will be 8.88% and risk is 14.06. The reason is because the different between 70%:30% and 30%:70% for High-tech-company and index fund is that, the return difference is only 0.64 but the risk is reduced more with 4.48. also investing more on index fund is much better based on the definition explained above and also when measuring the amount of risk per unit of return, 70%:30% gives 1.95 but 30%:70% gives 1.58. BEST SUGGESTION ON DIVERSIFIED PORTFOLIO The possible portfolio combination for Sandra that is more better than 30%70% in High-tech-company and index fund is investing 10%:90% as shown in Appendix H, because when measured per unit of risk over the return it will be 1.38 even though the return is still reduced to 8.56% but the risk is also reduced more by 11.83%. If Sandra choose this diversified portfolio its a good choice since it is the principal key relies mainly on statistical approximations in order to stabilize any chances of risk and return in her investment, no matter the fluctuation in the market or economic crisis around the globe. CONCLUSION Any comprehensive collection of risk measures should capture the following characteristic of the entire financial system which includes leverage, liquidity, correlation, concentration, sensitivity and connectedness. Therefore weather a particula r stock moves up or down is not that important to investors but what is important is the return and risk of that portfolio stock. Also using beta to estimate a systematic risk which cannot be diversified or better still invest fully in a fixed market income. Risk aversion explains that high security risk result to low price and high required return. Don’t waste time! Our writers will create an original "Offer investors the highest expected rate of return" essay for you Create order

Examples Of Nature Vs Nurture - 1082 Words

â€Å"In the real world there is no nature versus nurture, only an infinitely complex and moment-by-moment interaction between genetic and environmental effects,† (Gabor Matà ©, goodreads.com). Nature is something no one has control over, but nurture is another story. Nature is what is passed down from the parents, such as eye, skin, and hair color. Nurture are the influences around someone, such as peers, the media, friends, and parents. â€Å"High school students them former classmates of Nancy and Kenyon Clutter, chanted cheerleader rhymes, bubbled, bubblegum, gobbled hotdogs, and soda pop† (The Answer, 192). In the following paragraphs, I will explain why I believe nurture is more overpowering than nature. Nurture is the first thing that babies†¦show more content†¦Like parents, peers and friends have a bad influence depending on who a person hangs out with. Peers or friends have a good influence would encourage a person to join the student council, join a study session, or get all A’s in their classes. â€Å"Green, a suavely tough little septuagenarian, has an imposing reputation among his peers, who admire his stage craft - a repertoire of actorish gifts that includes a sense of timing acute as a night-club comedian† (Answer, 159). Good students would also hang out with each other around town, or they would in the mall shopping for clothes. They would not be the rebels who are hiding in bathrooms, smoking cigarettes or doing and selling drugs. â€Å"He had enjoyed it, seeing Bonnie out in public, nervous but nonetheless smiling, talking to people, and they both had been proud of Nancy; she had done so well, remembering all her lines, and looking, as he had said to her in the course of backstage congratulations† (The Last to See Them Alive, 4). Neighbors also have a decent influence on children growing up. The old lady across the street could give the child some money if they rake the leaves in her yard, or shov el snow off of her driveway. The child would learn business management at a young age, and to be helpful to your neighborsShow MoreRelated Nature vs. Nurture Essay examples2491 Words   |  10 PagesNature vs. Nurture The human brain is not an empty vessel — right from the start it is packed with knowledge, some of which is built into every structure. A newborn baby just knows, for instance, that crying will bring other members of the species to its aid — it doesnt learn it or work it out. (Carter, R. Consciousness, Weidenfeld Nicolson, p. 143) When Darwins Theory of Evolution was published (See Darwin, C. (1859) On The Origin of Species by Means of Natural Selection, Murray)Read MoreNature vs Nurture: Genes vs Environment Essay example555 Words   |  3 Pagesabilities. This controversy is most often recognized as the â€Å"Nature vs. Nurture† conflict. Some people believe that it is strictly genes that affect our ways of live and how we are, while others believe that it is the environment that affects us, and some believe that both of these influence our behavior. Either way, scientists and philosophers have been struggling for centuries trying to decide whether our personalities are made or born. Nurture plays a strongest role in a person’s life. Genetics mayRead MoreNature vs. Nurture: Parents or Environment Essay example571 Words   |  3 Pagesunderstand, thus making the topic of nature vs. nurture extremely controversial. The debates always show that nature and nurture contrast but then there may be e vidence that suggest that the two are linked and a person is actually an enigma characterized by the mixture of predisposed genetics and environmental influences. The idea that nature and nurture are joined is great to oppose nativists, people on the nature side, and empiricists, people sided with nurture. As mentioned before, the topic isRead MoreNature vs Nurture: Do Genes Or Environment Matter More? Essay example997 Words   |  4 PagesIn an attempt to understand human behavior, professionals for centuries have looked at the nature vs. nurture theory. While it is known that the physical traits such of eye or hair color have to do with nature, some strongly believe that the way people behave such as in personality and intelligence, have to do with genetic makeup and some believe that people behave a certain way solely due to their environment. Professor Jerome Kagan, from Harvard opened up a brand new world and offers hope forRead MoreThe Nature Vs. Nurture1463 Words   |  6 PagesT What can we define as Human Nature and Nurture? The Nature vs. Nurture has been a long never ending debate for some time now. Nature vs Nurture has been so profoundly debated, that now it’s unclear whether what makes us who we are and what we do, nature or nurture. For purposes of this essay Nature is going to be defined as characteristics we acquire through our genetic and biological factors, while that Nurture is going to be defined characteristics we acquire through our interactions and influencesRead MoreEssay on Nature vs Nurture1052 Words   |  5 PagesNature vs. Nurture M. B. Liberty University Psychology 101 Nature vs. Nurture There has been extensive debate between scholars in the field of psychology surrounding the Nature vs. Nurture issue. Both nature and nurture determine who we are and neither is solely independent of the other. â€Å"As the area of a rectangle is determined by its length and its width, so do biology and experience together create us.†(Myers, 2008, p. 8) Carl Gustav Jung, and leading thinker and creator of analyticalRead MoreNature vs. Nurture1117 Words   |  5 PagesThe nature versus nurture debate is one of the oldest issues in sociology (Davidson, 1991, n.p.). The debate centers on the relative contributions of genetics and environmental factors to human behavior (Davidson, 1991, n.p.). Today, the majority of experts believe that behavior and development are influenced by both nature and nurture (Macionis, 2009, p. 73). The biggest question now is which one affects human development more: nature or nurture? According to Macionis (2009, p. 72), in the pastRead MoreNature Vs Nurture Essay882 Words   |  4 PagesNature vs Nurture The discussion about nature and nurture can be considered one of the oldest problems in psychology, the main question of which is: Are human traits present at birth or are they developing through experience? (Meyers, 2013). The natural side of the discussion asserts that the facial features and the way of their development strictly through DNA and genetics are transmitted by parents and grandparents. The nurture side of the debate argues that we are born with a clean list andRead MoreNature Vs. Nurture : Nurture1405 Words   |  6 PagesDecember 2015 Nature vs. Nurture Very few people know that the nature vs. nurture debate actually began early on with famous Greek philosophers such as Plato and Descartes. These two theorized that certain things were inborn and occurred naturally regardless of environmental factors (Cherry 1). Most people began to witness this debate in 1896 when the phrase â€Å"Nature vs. Nurture† was coined by English polymath, Francis Galton (â€Å"Nature vs. Nurture†Origins 1). At this point the nature vs. nurture debate grewRead MoreNature vs Nurture Essay804 Words   |  3 PagesThe controversy of nature vs. nurture has been disputed for years. Nature vs. nurture refers to the question of which factors are most significant in determining development; those related to heredity or environment. It has been reported that some scientists think that â€Å"nature† is referred as the importance in heredity as the major determinate also known as â€Å"nature† the theory of human behavior. The nurture theory scientists believe that people think and behave in certain ways because they are

Diploma of management Free Essays

â€Å"Smart† Goals Kebab’s R Us is a company always striving to improve and gain a higher and greater market share. With our dedicated staff we were able to achieve all our major goals that were set out last year. These goals were to increase the number of kebabs sold throughout all caravans, to update 20% of caravans by replacing it with a new caravan and brand new catering equipment that was more efficient, to reduce our greenhouse gas emissions, to create a ‘mini sub kebab’ that could be catered for functions, to improve profits from $1 1. We will write a custom essay sample on Diploma of management or any similar topic only for you Order Now Million to $12 million in the financial year ending 2014, to place leadership programs in place to help employees to be trained to become caravan managers and to stay injury free. Results over the last year have been quite positive, meeting all target goals have been a credit to all staff. Hard work and dedication had paid off once the yearly report came in which backed it up with evident numbers. Falling Just short of the profit margin at $1 1. 9 million is still a satisfactory result. These achieved goals are a credit to all staff and also to the senior management team for applying the S. M. A. R. T goals principle to reach each. The teeters of SMART each represent a meaning these are; S- Specific M- Measurable A- Accountable R- Realistic T- Time Bound Major goals for next year will be similar in terms of growth and profit. Important objectives of not losing any customers, providing kebabs of the highest quality possible, to reach those customers or to cater for a wider community. To update a further 20% of caravans by replacing it with a new caravan and brand new equipment that will be more efficient lowering greenhouse gas emissions. Improving turnover to $40 million from last year’s $38. Million whilst also improving profits to $13 million. To introduce a commission scheme of selling a min of 250 kebabs a day to caravan operators which would result in bonuses and to promote those already trained personal into the 20 caravans that’s planned to hit the roads. Further improvement training to all personal of customer service which is federal government funded. Hiring 40 new staff to fill into the new caravan positions that are going to be opening, surveying customers to help us improve our service and also to yet again remaining injury free. Having similar target goals from last year ensures a greater chance to achieve these goals through the usage of SMART. Major goal NO. I Specific – Update a further 20% of vehicles including company cars and caravans from the start of the new financial year in 1/7/14-30/6/15. To achieve this goal Kebab’s R Us will use clearly defined processes and guidelines that were also used from the previous year to achieve the same goal. Location of vehicles that are being upgraded is the Queensland region. Requirements of this goal are enforced by government legislation and also to have a better looking image. Measurable- This goal is measurable as we need to have 20 vehicles updated in one year. Every quarter the aim is to have 5 vehicles upgraded. A project manager with a team is in hare of this changeover and upgrade in which they closely monitor it. Every quarterly the project manager attends a senior management meeting to discuss progress. Accountable- Everyone working in the changeover and management team is all liable to work in conjunction with each to achieve this goal. Realistic- The same goal was set out last year and it was achieved so it makes it a realistic proposition this year. Time Bound- The time frame for this goal will start from the 1/7/14-30/6/15, in this timeshare 20 vehicles must be updated to accomplish this goal. Major goal NO. 2 Specific- Improving turnover to $40 million from last year’s $38. Million in the financial year starting on 1/7/14 till the end of that financial year in 30/6/15. To achieve this goal Kebab’s R Us will use clearly defined processes and guidelines which will set the foundation to hit the ground running with changes in certain areas which will help the growth of the company. Located nationwide this goal is every employees aim. Requirement for this goal is to improve our market share and our share prices. Measurable- This goal is measurable as the company needs to grow by only $1. 9 million in the next financial year. The lowly some is still good considering a few years back of poor results. The finance team along with senior management is responsible to monitor and innovate new ways of increasing funds. Every month a meeting will be held to monitor and discuss changes to this goal. Accountable- The recruiting team regional managers which is led by the HRS officer. Realistic- This goal is realistic as new caravans rolling out every quarter new positions will open up therefore creating the chance to hire 10 new casuals every quarter to achieve this goal. Time Bound-The time frame for this goal will start from the 117/14-30/6115. The first intake of 10 new employees is expected on the 1/10/14 followed by the next quarter at 1/111 5 in conjunction of the new caravans becoming available. How to cite Diploma of management, Papers

Business Process Model of Bakery Case Study

Question: Discuss the factors you have identified and expalin why they are more reliable then the cliches in the original article. Answer: 1. business process of b bakery B Bakery is a bakery company that sells products to supermarkets and different pub chains. They have mixed customer base with some prominent businesses as their customer. They produces bakery products and supplies those to another businesses, shops etc. A bakery business needs has some production unit, supply chain management, sales, marketing, accounts, finance and HR management process. The supply chain management will take care of buying raw material from other businesses, like poultry farm, fruit shop, flour supplier etc. Then the production using will produce bakery product. Then the inventory and logistics management will need to store those products and delivery the orders to different shops, pubs etc. Accounts will manage the accounting activities, payment to suppliers, payment from customers, payroll management of the staffs etc. The HR management will take care of the hiring, payroll etc. of the staffs. Finally sales will take order and sells the products by exploring prospective markets. Marketing will takes care of promotion of the business. Each of the business processes are dependent on each other. If one process is affected it will hamper the whole business process. For example, if there is problem with supply product ion will be affected, and that will affect sales, finally accounts. In the same way, if the business losses some accounts, then the business will have less sales, HR management will suffer. Thus for running a bakery, it needs to take care of each business processes, the resources like baking equipment, bakers, chefs etc. B. Bakery will follow something similar to what a typical baker does. 2. Business Requirements Each process of a bakery business, as discussed in the previous section, are important and indispensable. However the core business processes are, SCM, production, HRM and accounts. But, accounts is the most important for any business as it works like fuel to the whole business process. The business of B bakery has got significant growth in last few years. However, currently it is facing some difficulties with accounts. They have dedicated accountant team with accounting experts who takes care of the bookkeeping etc. for the business. But the accounts cannot help in competitive decision making activities. As a result the company has lost some of its important accounts by failing to offer products at competitive price. Now, it has realized that the business needs more information for running it smoothly in coming years. These information are likely to come from their business processes and market research. Based on these information the company will be able to make strategic decisions and that will help them to bring their business to next level of success. (John Wiley Sons, 2012) The business wants to have an accounting information system for its business. They want to invest in some available accounting software for that purpose. Thus the business requirements for B Bakery are, Enhancing their accounts. Integrating all business processes and accounting system for better decision making. Investing in some available accounting software and customizing it according to their business process. Implementation of ERP and AIS for their business. ERP will help in integrating the business processes and will provide a better platform for AIS or accounting Information System. The bakery business needs several key outputs from its core business processes to achieve better performance of their business in market. The first thing needs from the business processes are information. All transactional and operational information are required for processing and decision making. Accounting is a process in a business that is connected to all other business process. So, for getting more information from the accounts process, it will need information from all business processes that are present in the business. It will take information like payable to suppliers, stock in inventory, amount of sales, possible margins, cost of raw materials, costing, labor charge etc. All these are important to setting competitive price of some product. Other information are needed from the business processes are the payrolls of the staffs of the company etc. For acquiring these information from the business processes, it will need an integration of the business processes and the systems used for the business processes. Better integration will provide better compatibility and faster business process. Ultimately that will help in earning more revenue. The AIS implemented over the ERP or integrated to the ERP implementation will provide a structure to the business that will help the business to collect, process, manage, store and retrieve financial and accounts information by business analysts, managers, accountants, tax consultants, auditors etc. On the other hand ERP will integrate the functions and processes of the business. The integration of ERP and AIS will bring more valuable information from the business information. AIS will provide business forecasting information by analyzing historical information. (Romney Steinbart, 2014) 3. System Requirements The firm will need ERP and AIS implementation for their business. Both of the implementation are necessary for achieving the business objectives of the company. The ERP software will integrate all business processes and there will be a shared and central database for all business processes. The central database will be also available to the AIS process. Thus the AIS software will have access to information from the entire business process and the processing will be better and more accurate. (Gelinas Dull, 2008) Any AIS provides three fundamental functions to the business process. Those are, 1. An effective and efficient data processing using the data acquired from different transactions by the company. For that function it will need to capture all those transaction sources, documentation etc. All these transactions should be recorded to journals. A journal chronologically records each transactional event related to the company. Then it will need to transfer data from journal to ledgers. In ledger, it will sort data based on different accounts. 2. The AIS software will help the management in decision making by providing information from the databases and analysis. There are mainly two categories of information to be shared with management, managerial reports and financial statements. 3. The AIS software will provide all required internal control for ensuring the reliability of the information being produced by the software, for ensuring the efficiency of the business activities and accordance to the objectives of management. There are various sub systems of any AIS software. Those are, financial cycle, expenditure cycle, HR, revenue cycle, production cycles and general ledger and reporting cycle. 4. Selection of Software B Bakery is a family owned firm based business. It has near about 70 employees. The business has generated revenue more than $13.5 million in the last year. Thus the company can be categorized as medium to large scale company. So, it will need some suitable solution for their business. (Simkin, et al., 2014) Based on the industry research, there are three classes of accounting information system software for businesses based on the size of the business. Those are, 4.1 Entry level solutions The entry level accounting software are suitable for small businesses and home based businesses with one to five members. The software from this class is capable of delivering basic financial accounting functionalities, review, reporting etc. AIS like QuickBooks, SAGE 50 US Edition, XERO, FreshBooks, and Wave etc. are the examples of AIS software belonging from this class. 4.2 Small to Medium scale Business Solutions This class of AIS software are suitable for small and medium scale businesses with five to 100 active users. The software are able to support more functionalities than the previous class. There will be high demanding transactional information support for reporting etc. The software are highly scalable and the associated database will be robust. Some examples are SAGE 100 ERP, EXACT Max, QuickBook enterprise, CYMA, Microsoft Dynamics (GP, NAV, SP), SAP By Design etc. 4.3 Enterprise Accounting Software This class of AIS software are suitable for organizations having more than 100 active users. These systems has robust feature sets and extended functionalities. The Examples of such software are, SAP, Oracle, SAGE ERP X3 etc. Based on the business requirements and organizational details of B Bakery, the recommendation is for selecting a good SMB solutions. 5. Selection of Vendor Among the SMB accounting system solution providers, the prominent vendors are SAGE 100 ERP, Microsoft Dynamics (GP, NAV, SP), SAP By Design etc. Here is a discussion of these three systems along with available variations. 5.1 SAGE 100 ERP SAGE 100 ERP has different variation of AIS software for SMBs. Those are SAGE 100 Advanced ERP, SAGE 100 Standard ERP etc. It can support almost 50 active users at a time for diverse range of accounting and financial activities, business intelligence, HR, web services, manufacturing and distribution, CRM services. The solutions are highly customizable based on different business processes. The software are highly modularized, stable and flexible. It supports for recording unlimited historical budgets, creation of various financial reports from available templates, creation of BOM or Bill of Materials. (SAGE, 2014) It needs Microsoft Windows environment and Microsoft SQL based backend database. It can be implemented based on client server or online platform. There are wizard based support for setting up and using the software. There is a seamless integration among the modules of the software. It is easy to use and easily understandable. There are robust features that will help to maximize the ROI of the business. The software provides easy to build reports and presentation also. The Business intelligence module will help in better decision making. Users can add user defined fields, business rules etc. for performing specific tasks. However, customization like these are expensive and sometimes need up gradation. Personalization of workflows based on different users is also possible. 5.2 Microsoft Dynamics Microsoft Dynamics also has variations of AIS software available for SMBs like B. Bakery. The variations are Microsoft Dynamics NAV, GP, SL etc. Among these Variations Microsoft Dynamics GP is a general accounting software that offers functionalities for controlling resources, finance, decision making, HR etc. The ERP based AIS software is easy to deploy and use. The interface is similar to Microsoft Office. There are special support for tax and regulatory, online training etc. Microsoft Dynamics SL is another variation of Microsoft Dynamics and this is an AIS software suitable for medium scale businesses. The specialty of this software is, it is suitable for project focused accounting. Construction businesses, Government contracting etc. are suitable for this. Microsoft Dynamics NAV is a general purpose AIS software for any kind of medium sized business. It provides total control over the core business process like supply chain management, HRM, financial management, business intelligence, reporting etc. (Microsoft , 2015) 5.3 SAP Business ByDesign SAP Business ByDesign is a general accounting solutions for small to medium scale businesses. This is mostly suitable for SMBs that are looking for SaaS based cloud accounting solution. It gives a robust set of professional services along with integrated process for finance, CRM etc. The companies belonging to light manufacturing industry is also suitable for implementation of this system. (SAP, 2015)The advantages of this software are, The software is highly scalable. Addition of new users and increase the amounts of transaction is possible. There are support for international account and financial transaction support. Multi-currency and multi-language support. The cost of ownership is reduces. Management of the resources across the organization is more controlled and efficient. Cloud based solution and does not require any hardware infrastructure to be implemented. There is built is disaster recovery system. Enhanced support for security. 6 Recommendation B Bakery wants an AIS software to invest on. They want the software to work on an integrated platform connecting all of their business processes, capable of analysis more business operational and transactional data to the decision making process. The recommendation is to use SAGE 100 ERP accounting software for their business. There are numerous advantages of using the same in their business process. The reasoning behind the recommendation are, A connected and integrated platform for different parts of the business will be available through the software. Vendors, customers and in house users can connect to the same system through BYOD devices using phones and web interface. Managing CRM, sales etc. can be done from this integrated platform seamlessly. (SAGE, 2014) Transformation of raw business data into meaningful information will add advantages to the business process. There are special kind of dashboards in the software that will provide easy access to the business intelligence functions. These information from business intelligence analysis will help to discover potential customer, products, demands in market etc. These information will help to create competitive strategy. Historic data, inventory data management, safety stock control etc. are also possible. As the analysis helps in understanding potential customers, understanding customers requirements thus customer relationship management will be easier and better. There is an integrated CRM module with SAGE 100 ERP. It works like a CRM sales tracker. It helps in improving product stability, usability, manitance, integration, reporting etc. Collaboration with social media helps in delivering better CRM experience. The CRM collaboration module offers facilities like exchange of knowledge among user. These functionalities will not only help in delivering better customer relationship services, rather it will also help in building better workforce, more collaboration among the users and staffs in the organization. Organization culture will be improved along with performance of the business process. The billing and payment module of the software will help to in invoicing, quick payment etc. The expense for invoicing will be reduced, DSO or Days Sales Outstanding will be reduced, redundant data entries will be reduced, and time required for invoicing will be reduced. Tedious process of billing and invoicing will be automated and will take lesser effort. As a result, the time consumed in the process will be saved and utilized in other business processes. That may accelerate the performance and growth of the business. Mobile commerce is becoming a trend very rapidly. It is likely to grow in coming years. Businesses are interested and moving towards it. There is dedicated mobile sales module in the SAGE ERP 100 software that helps the managers in order processing, payment collection etc. These information can be added to the actual ERP system anytime. The company will be able to earn more revenue and benefits if they utilize the powers of the accounting software. Receiving ROI or Return on Investment will be faster and improved. Getting order and discovering potential customer will help in expansion of the customer base. Expansion of customer base means there will be more business and scopes for earning more revenues. Management and fulfillment of orders will be more organized and efficient. There are several value added services available in the software. The business can simply add it to their AIS implementation and stat receiving advantages of those. Overall the business process will be integrated, simplified, robust, efficient and scalable. 7 References Gelinas, U. J. Dull, R. B., 2008. Accounting Information Systems. s.l.:Thomson/South-Western. John Wiley Sons, 2012. Accounting Information Systems: Understanding Business Processes. 4th ed. s.l.:John Wiley Sons. Microsoft , 2015. Microsoft Dynamics. [Online] Romney, M. B. Steinbart, P. J., 2014. Accounting Information Systems. s.l.:Pearson . SAGE, 2014. Sage 100 ERP, s.l.: SAGE.SAP, 2015. SAP Business ByDesign. [Online] Simkin, M. G., Norman, C. S. Rose, J. M., 2014. Core Concepts of Accounting Information Systems. s.l.:John Wiley Sons.