Good management accounting is an aggressive tool.
The practice of management accounting includes innovation, experimentation, diversity, success and due to the fact that once in a while failure.
As organizations tinker with their management accounting systems.
Remember that an exact commercial enterprise is always reexamining its internal information system to see whether or not it can coax any better data out of the system.
The solely cause a company makes use of management accounting is to a competitive need.
And competitive want need dictates that one organization’s management accounting system will now not seem to be like some other manager.
Managers are continually making choices the use of the available management accounting information.
- What needs to be produced?
- What ought to be sold?
- How must the service be delivered?
The three management features of planning, controlling and evaluating commonly comply with a natural order at least in theory.
In practice, managers are frequently anticipated to work with processes, customers and employees requiring all three decision-making features at once.
Planning controlling and evaluating are frequently part of the daily duties of managers.
The objective right here is to add a little structure to that everyday analysis.
Management planning includes recognizing issues or opportunity identifying alternative, inspecting those alternatives.
And then selecting and implementing the best alternatives.
There are two fundamental sorts of planning:
1.) Long-run planning –
It consists of strategic planning and capital budgeting.
2.) Short-run planning –
It includes production and process prioritizing and operational budgeting or profit planning.
1.) Long-run planning:
Long-run planning involves making choices with effects that extend countless years into the future.
Usually, 3 to 5 years however every so often longer than that.
This consists of broad-based decision about product markets, production facility and financial resources.
Long-run planning is referred to as strategic planning.
Strategic planning in all likelihood the most essential decision-making system that takes place at the executive level in any organization today.
Successful executives such as William Weldon of Johnson & Johnson or Warren Buffett of Berkshire Hathaway:
They have always displayed great skills and studying the market identifying customer needs.
They analyzing competitor’s strengths and weaknesses and defining the right investments in processes their organizations need for success.
Management accounting supports strategic planning by providing the internal information needed by executives to evaluate and adjust their strategic plans.
With strategic planning in place or in process, the company can then plan for the buy and use of predominant assets like building their equipment.
To assist the company meet its long-range goals.
If a University’s long-run strategic plan consists of making its football team greater competitive.
The university must reflect on consideration on enhancing or replacing its current football stadium and practice facility.
This kind of long-run planning of the acquisition of assets is known as capital budgeting.
Short-run planning is divided into two classes production prioritizing and operational budgeting.
Once the organisation has made long-term useful resource commitments that is land, constructing equipment, management personnel and the like.
Then managers want to decide how to best use these committed sources to maximize the return on their capital investment.
A process often referred to as production prioritizing.
Now did you catch the phrase return on capital investment in the last sentence?
Now did you seize the phrase return on capital funding in the ultimate sentence?
That sound acquainted the DuPont ROI idea is one way to set up priorities on products, carrier approaches or divisions.
That make the greatest contributions to the goals of the organization.
Once the organization has decided what to furnish to the market in order to maximize its goals.
Then managers are ready to go on to the next phase of short-run planning and operational budgeting.
Sometimes recognized as profit plans operational budgets are used with the aid of managers to set up and communicate daily, weekly and month-to-month goals.
It also as standards for the organization.
Many individuals face extreme personal monetary problems due to the fact they fail to use even the most simple methods of regular operational budgeting.
Managerial accounting involves collecting and using information relating the planning, controlling, and evaluating.
- Planning entails searching into the future,
- Controlling includes managing the present, and
- Evaluating relates to searching for the past.
Controlling entails a procedure of tracking authentic performance.
These data are then used in the evaluating system to examine in against the budgets and measure deviations from the goals or standards.
Controlling additionally includes the real-time everyday management of all of a company’s enterprise processes.
An excellent example of a control device is the radar gun used via principal league baseball teams.
To measure the speed of the pitcher is throwing his pitches.
These measurements can be used at the end of the season in evaluating which pitchers are most treasured to the team.
But they can additionally be used by way of the manager throughout the route of a game to indicate.
When a pitcher is getting worn-out and ought to be replaced.
The radar gun measurements are beneficial for evaluating individual performance.
After the truth, however, are additionally beneficial incorrectly managing the crew at some stage in the game.
Evaluating includes analyzing outcomes providing feedback to managers and different employees rewarding overall performance and figuring out problems.
Evaluating is normally a procedure of evaluating proper overall performance towards predicted inputs of costs outputs of quality and timelines.
This evaluation usually consequences in variances that management how properly the organization is attaining its plans.
If performance is in accordance with the plan the variances signal that operations are in control.
And no uncommon management action is necessary.
If overall performance is substantially different from the layout management needs to figure out how to alter operations in order to enhance future performance.
Most college students in university training are asked to consider their instructors close to the give up of the term.
These assessment effects can be used by way of conscientious school contributors making an attempt to enhance their teaching.
And also used by the Cartman heads in deciding which teachers should be retained or replaced.
Evaluating brings us lower back to the factor the place we commenced planning.
The information gained through the evaluating function is used for planning for the following period.
Remember that as managers consider overall performance in the last period.
They may additionally be making a planning decision to enhance operations for the subsequent period while gathering and receiving consequences to manipulate the present period.
Cost-volume-profit in management accounting
The cost-volume-profit analysis is also called CVP analysis.
The primary objective of CVP evaluation is finding out how a company’s sales influence profits.
You will hear CVP evaluation referred to as breakeven analysis.
Before opening a new Thai restaurant the would-be restaurant has to calculate.
How many customers a day on average have to be served in order to pay the rent and generate a profit.
If the vital number of customers to break-even appears unreasonably excessive the business plan needs to be revised or abandoned.
Now, this sounds like an apparent planning exercise.
But too many small business owners neglect doing even this basic analysis to use CVP analysis.
Successfully a manager should categorize value is both fixed or variable.
The concept of fixed and variable costs is pretty simple.
Total variable cost exchange in direct percentage to change in some unique action level such as manufacturing or sales volume.
One example of a variable cost is the cost of material such as baggage of rice used in a Thai restaurant.
Which differ proportionally with the number of units produced.
Sales commissions which range proportionally sales volume are additionally an example of a variable cost.
Another way to suppose of a variable cost is that the price is a set quantity per unit $10 per meal or $12,000 per cart.
Or $20 per book the more foods or motors or books that are offered the greater the complete variable cost.
In contrast, fixed costs remain constant to be incomplete regardless of undertaking a degree of at least over a certain range of activity.
Examples of fixed costs are rent, insurance, tools depreciation and supervisor salaries.
Regardless of adjustments in sales or manufacturing output these costs normally stay constant.
Using the Thai restaurant instance the rent in the restaurant area is a fixed cost.
Because no matter how many customers are attracted to the restaurant during the month.
However an accurate understanding of variable and fixed costs gives the organisation with a clear view of how it can make a profit the usage of CVP analysis.
The fundamental CVP thought is that the distinction or margin between sales and variable costs ought to first be used to cover fixed costs.
Once the company achieves that break-even point then the ultimate margin turns into profit.
If the average variable cost to create a meal at a restaurant is $10 and
The common rate of a meal is $16,
Then every meal on average contributes $6($16 – $ 10) to cover the fixed costs of running the restaurant.
If monthly fixed cost such as rent, insurance plan and so forth at the restaurant is $ 9000.
Then the owner needs to sell 1500 meals that are $9000 divided by $ 6 each month in order to break even.
Cost-volume-profit is important in management accounting.
Contribution-Margin-Calculations in management accounting:
Contribution-margin-calculations are very beneficial when inspecting cost-volume-profit relationships in the management planning process.
Doing CVP evaluation the use of contribution margin calculations is a simple technique even though it does require some easy algebra.
We commence this topic with the assumption that all cost can be described as both fixed or variable.
To highlight the vital concept that CVP analysis relies upon dividing costs and fixed and variable behaviour patterns.
We will improve the CVP equation as follows:
First, due to the fact, all costs can be categorized as both variables or fixed.
1.) We can express the calculation of profit with the following basic formulae:
Profit = Sales revenue – Variable costs – Fixed costs and
2.)We can specify the formulae more precisely by expressing the equation in units i.e
Profit = Sales price times the number of units –
Variable costs the number of units –
This equation is a quick and useful method for examining the financial aspects of CVP analysis problems.
In the management accounting contribution margin plays an important role.
CVP analysis using this equation is basic math you merely insert the known elements into the formula and solve for the one unknown element.
In management accounting, BEP is most important.
In many cases as a manager, you may desire to recognize how many units need to be sold to break-even.
The break-even point is described as the volume of activity at which total revenues equal total costs or in other phrases the place profit is zero.
The break-even point can also additionally be a concept of as the volume of activity at which the contribution margin equals the fixed costs.
Although the goal of commercial enterprise planning is to make a profit now not simply to break-even.
Knowing the break-even point can be beneficial in assessing the threat of promoting a new product.
Setting sales goals and commission rates figuring out on advertising and marketing and marketing techniques and making different comparable operating decisions.
Because the break-even-point is through definition that pastime degree at which no profit or loss is earned.
The simple CVP equation can be modified to calculate the break-even factor as follows.
All that you want to do to compute the break-even-point is absolutely set profits equal to zero.
And then solve for the unknown such as the number of units to be sold or the total revenues to be achieved.
Once you understand the basic CVP formulae you just set it up and solve for whatever unknown you’re interested in planning.
Another way we can use CVP analysis in the planning process is to determine what level of activity is necessary to reach a target level of income.
Instead of setting profit at zero to do a break-even analysis.
We can just as easily set income in the formulae at the targeted level.
And then use the formula to plan or predict what fixed cost, the variable cost, sales price, and sales volume are needed to achieve the target level of income.
Target income is usually defined as the amount of income that will enable management to reach its objectives.
Paying dividends, meeting analysts, predictions purchasing a new plant and equipment, or paying off existing loans.
Target income can be expressed as either a percentage of revenue or as a fixed amount.
The power of the CVP equation lies in understanding the relationship between sales, variable costs, and fixed costs.
Once we quantify those relationships we can do some pretty simple analysis that yields some pretty powerful results.
The foundation of management accounting is cost control.
To absolutely apprehend management accounting you want to hold close the glide of costs in manufacturing services and merchandising organizations.
Understanding cost flows is a beneficial way to apprehend how a commercial enterprise is structured or organized.
Without correct cost information, it is challenging to set prices, consider performance, reward employees or make manufacturing decisions.
It is even challenging to recognize whether or not a business enterprise ought to be competing in a specific market.
As we mentioned formerly costs of manufacturing production can be categorised into three elements:
Direct labor and
To briefly review:
Direct material consists of the prices of raw materials that are used at once in the manufacture of products.
And are kept in the raw materials warehouse until use.
Direct labour consists of the wages and different payroll-related prices of manufacturing unit employees who work at once on products.
Manufacturing overhead consists of all manufacturing costs that are no longer categorised as direct material or direct labour.
One of the best ways to understand how an organization works are as follow the money.
In different words, take a look at how costs flow via an organization.
Since management accounting systems were originally built to support the manufacturing process.
Responsibility accounting is a system in which managers are assigned and held in charge of positive charges revenues and or assets.
There are two important behavioural considerations in assigning responsibilities to managers.
1.)The responsible manager must be concerned about creating the plan for the unit over which the manager has control.
Current research indicates that people are more motivated to achieve a goal.
If they participate in setting it such participation assures that the goals will be reasonable.
And perhaps more importantly that they will be perceived to be reasonable by the managers
2.) A manager has to be held to accountable solely for these costs, revenues or assets over which the supervisor has substantial control.
Some costs may be generated within a segment.
The manager of the venture a manufacturing division may additionally be held responsible for labour costs.
But employer wages might also be decided by using a Union scale managed elsewhere.
Admittedly determining substantial control requires a judgment based on circumstances.
If all relevant factors are considered careful and fair judgments can be made.
If managers are to be held responsible for the costs incurred in their centers.
They must have control over those costs that have information relevant to those costs.
And have a system that focuses on and supports effective cost controls.
Traditionally companies have used a standard costing system that isolates differences between actual and standard or budgeted costs.
To determine whether costs are too high or too low as well as whether costs are improving or getting worse.
This is critical information if the organization expects to be competitive.
In a standard cost management system, standard costs are compared to actual costs, and variances are computed.
Service, merchandising, and manufacturing firms that use standard costing will design their accounting systems to incorporate standard costs and variances.
This type of system called a standard cost system is a cost accumulation process based on the cost that should be incurred rather than a cost that was incurred.
The steps in establishing and operating a standard cost system are as follows:
1.) The standard cost must be developed.
- How much material should be used in a product?
- How much should that material cost?
- How much labor should be required to assemble the product?
- How much should that labor cost?
Answers to these questions research and analysis.
But that time is well worth the effort at the end of this first step.
You know how much a product or service should cost you.
2.) Then is to collect the actual costs the accounting system should be designed to gather actual cost information.
You will be able to say,
- How much material was used in a product?
- How much that material did cost?
- How much labor was used in assembling a product?
- How much that labour did cost?
3.) To compare the actual costs with what you expected those costs to be.
The result will be what accountants call variances the difference between what we expected and what was actually incurred.
Analyzing these variances allows you to determine the cause of the variance:
Did we use too much labor or material?
Did we pay too much for our labor or material?
This variance analysis is a crucial step in using standard costing techniques.
4.) We are now down to asking the important question of why? we know there is a variance.
But now we need to investigate:
Why was our standard unreasonable?
We can now ask a host of why questions that will allow us to identify, Is there a problem?
And what can we do about it?
These steps describe a typical standard cost system you are likely to find an extensive standard cost system in most manufacturing firms.
Which usually have standard cost for direct materials, direct labor, and manufacturing overhead.
However many service and merchant firms also use standard cost systems to effectively manage critical costs in their organizations.
A budget is a plan.
Technically it is a quantitative expression of a plan of motion that shows,
However, any individual or something will gather and use resources over a specific duration of time.
The budget identifies and allocates resources fundamental to correctly and effectively elevate out the mission of the organization.
Although budgeting may additionally sound to you like an unappealing activity.
Successful budgeting is clearly critical to the success of a business.
Whether we’re talking about an individual a household or a massive organization.
The usual motive of a budget range is to surely set up a plan so that overall performance in relation to a goal can be cautiously monitored.
Thus budgeting has a two-fold purpose is in the following manner:
1.) To permit persons or organizations to enhance a plan to meet a designated goal.
2.) To enable ongoing evaluation between actual results and the plan in order to higher manipulate operations or activities to do.
Budgeting is such vital recreation that the top executives of most companies coordinate and take part in the process.
Now research and experience have proven that numerous behavioural elements decide how profitable the budgeting process will be.
first, the procedure should have the aid of top management.
Second, managers and other employees are more motivated to achieve budget goals that they understand and help design.
Third, deviations or variances from the budget must be addressedby managers in a positive and constructive manner.
A firm-wide operations budget ought to be organized with the aid of top management dispensed to the major segments of the firm.
And then, in addition, unfold out to every lower-level segment.
This is the top-down strategy every now and then referred to as authoritative budgeting.
The alternative is the bottom-up method additionally recognised as participated budgeting.
These requests are combined and reviewed as they move their way up the organizational hierarchy.
With adjustments being made to coordinate the needs and goals of within the overall organization.
Because of both top-down and bottom-up approaches are legitimate.
Most organizations use some combination of the two.
The blending of these are two approaches will vary among organizations.
A smaller organization with a few management levels will rely more on a top-down approach than with a larger organization.
Top management in smaller organizations tends to be more knowledgeable about and more involved in the operating details.
The primary goal of an enterprise is to generate a profit for its owners.
Profitable corporations can be primarily based on a low-cost method like Walmart.
A customer service method like FedEx.
A product branding method like coca-cola.
A variety of other business strategies no matter what a company’s underlying strategy is.
It ought to make long-term investment selections in buildings, equipment, information technology and personnel etc.,
Capital budgeting is the process of determining whether future benefits.
Stemming from these strategic decisions are enough to justify the significant upfront related costs.
In business capital is described as the total amount of money, different assets owned or used by means of an individual, company to accumulate future profits or benefits.
Thus capital is something to be invested with the expectation that it will be recovered alongside with a profit.
Capital budgeting is the planning for that investment.
Now from a quantitative standpoint, the success of the investment depends on the amount of net future cash inflows.
Or future cast savings in relation to the costs the current cash outlays on the investment.
Ignoring the time value of money for a moment.
If a company invests $10,000 and receives only $10,000 in the future there’s been no profit.
In other words, there has been no return on investment.
However, if $15,000 is acquired in the future.
The original investment has been preserved and an additional return on the investment or profit of $5,000 has been earned.
Other matters being equal traders for sure desire to get hold of the best future gain for the least investment cost.
Now three elements of capital investment decision are critical to long-run profitability.
1.) To make investments in as that is like land building and equipment generally require massive outlays of capital.
Firms making poor decisions involving these large assets will struggle to survive.
2.) The potential long-term impact on earnings.
Long-term investments with the aid of definition prolong over numerous years.
Thus poor capital budgeting resulting in bad investment decisions is likely to have an adverse effect on earnings over a longer period.
3.) These decisions are difficult to reverse.
Long-term investments in land buildings and specialized equipment are much less liquid than other investment.
For example, it can usually be sold through regularly established markets at almost any time it’s much more difficult to dispose of capital assets.
Now all long-term investment decisions are important.
The larger the investment, however the more critical is the need to budget for that expenditure.
The longer the time period the more difficult it is to assess future outcomes and a plan accordingly.
Now following are some typical business decisions that can be better understood with capital budgeting techniques.
- Should a machine that breaks down be repaired or replaced?
- Should a pharmaceutical company hire a renowned research scientist and commit to supporting this scientist and her staff for the next 10 years?
- Should a company add to its existing manufacturing facility?
- Should have to construct a new large factory?
Situations like these require careful consideration of many factors qualitative as well as quantitative.
It is just as important for nonprofit organizations to make sound strategic and capital investment decisions as for-profit organizations to do that.
The concepts and techniques discussed in this topic are applicable to all types of:
- Governmental agencies,
- Districts hospitals,
- Municipalities etc.,
Capital budgeting analysis can help by answering two basic questions:
First, relating the screening does the investment make sense that is doesn’t meet a minimum standard of financial acceptability and
The second relates to the ranking is an investment the best among the acceptable alternatives.
The 4 most often used capital budgeting methods are:
- The payback method,
- The unadjusted rate of return,
- The net present value method and
- The internal rate of return method.
This sequence parallels the sample of most companies as they develop largely and end up more sophisticated in the way.
They make investment decisions that are groups normally first use the payback approach or the unadjusted rate of return method.
Because these methods are relatively simple.
Both of these techniques, however, have a serious weak point in that they ignore the time value of money.
As an end result of most organizations subsequently turn to both the net present value or the internal rate of return method.
Both of which are extra theoretically right processes to capital budgeting.
The last two techniques are referred to as discounted cash flow methods.
Because they use a discount rate in evaluating the cash flows of investments.
The payback method is broadly used in enterprise due to the fact it is easy to apply.
It provides a preliminary screening of investment opportunities.
It can additionally be used as a crude measure of project risk.
Basically, this method is used to determine the length of time.
It will take the net cash inflows of an investment to equal the initial cash outlay.
The payback period is an in particular necessary consideration for businesses in tight cash positions.
Actually, any time period can be applied and that equal cash flows are generated for each period.
The simple formulae for a project’s payback period are we take the investment cost and we divide it by the annual net cash inflows.
Payback Period = Investment cost ÷ Annual net cash outflow
The result will be our payback period.
To illustrate the payback method consider that you are trying to decide.
To purchase a personal computer, printer, and software for typing and printing essays and term papers for students.
A reasonably good PC printer and appropriate software will cost a total of about $1000.
Let’s assume for simplicity’s sake, that you can borrow the thousand dollars from a family member who requires no interest.
But needs to be repaid at the end of 12 months.
You expect to make $125 a month after paying for supplies and other related expenses.
The payback period in months may be computed as follows:
We take $1,000 our initial investment and divide it by our net cash inflows each month of $125.
The result is 8 months(payback period).
Because you would generate sufficient cash to recover the investment in 8 months.
You would repay the family member within the agreed-upon period of time.
Assuming you spend none of the money like that’s gonna happen.
This is one of the strengths of the payback method.
It can be used to determine whether an investment fits within an acceptable period for the use of the funds.
The payback method has several weaknesses.
However one is that it measures the time needed to recover the initial outlay.
But does not consider the investment’s overall profitability.
Most investments are made in order to earn an acceptable return not just to recover their costs.
You are not solely interested in recovering the thousand dollars in the shortest time possible.
Your purpose in buying the equipment is to earn some extra money.
Assuming that the equipment will ask for more than eight months you not only will recover your initial investment.
But you will also generate subsequent earnings of at least $125 a month.
Although the payback method may provide some clues about the advisability or risks of investment.
It does not directly measure profitability.
The other major weakness of the payback method does not take into account the time value of money.
Net Present Value(NPV):
Two broadly used capital budgeting strategies apprehend the time value of money.
Both strategies utilized discounted cash flow concepts in figuring out the acceptability of an investment.
The net present value technique makes use of a standard cut price that is the hurdle rate.
And then makes comparisons in selecting a discount rate a company’s cost of capital as properly as the riskiness of a project ought to be considered.
If the company were considering a very high-risk project.
A greater discount rate would be used.
Because high-risk initiatives need to yield greater than average returns in order to compensate for the elevated likelihood of low or negative returns.
The selection of the proper discount rate is imperative in the execution of a beneficial capital budgeting analysis.
The net present value technique compares all anticipated cash inflows related to funding with the current and future cash outflows.
All cash flows are discounted to their current values giving consciousness to the time value of money.
For this reason, the net present value method is superior to both the payback method and the unadjusted rate of return method.
In general, the net present value method involves the following five steps:
1.) Estimate the amount and timing of all cash flows related to the investment.
2.) Evaluate the riskiness of the cash flows in order to decide the appropriate bargain rate.
To be used in your present value calculations.
3.) Compute the present values of all the anticipated cash inflows and outflows of the investment.
4.) Subtract the total present price of the cash outflows from the total current value of the cash inflows.
This difference is the investments net present value.
5.) Decide whether they undertake the investment.
If the net present value of the investment is positive or at least 0.
The project is acceptable from a financial standpoint.
Now steps 1 and 2 are the most difficult steps in evaluating a long-term investment.
These steps are our business judgment experience and careful analysis of details separate managers.
That makes good long-term investment decisions from those who make bad ones.
Steps three through five require familiarity with present value concepts and computations.
Those ideas and computations are nicely past the scope of this course.
But they are not well beyond your grasp.
Suffice it to say that the net present value method recognizes the time value of money.
And factors that into the calculations in determining if a project is worth undertaking or not.
The Internal Rate of Return(IRR):
The internal rate of return method also known as the time adjusted rate of return method or the discounted rate of return.
This method is similar to the net present value approach in that.
As a discounted cash flow approach it is ideal to both the payback technique or the unadjusted rate of return method.
Some managers think about the internal rate of return meth and extra hard than the present value method.
Other managers, however, choose to analyze the investment, alternatives in phrases of the comparative rate of return instead than net present values.
The internal rate of return is described as the proper discount rate that funding yields.
Mathematically the internal rate of return is the discount rate that yields a net present value of $0.
When applied to the cash flows into an investment both inflows and outflow.
Management must compare the project’s internal rate of return with the company’s usual discount rate often called the hurdle rate.
Or the rate that must be cleared for a project to be acceptable.
If the internal rate of return is higher than or equal to the company’s hurdle rate the project is acceptable.
If the internal rate of return is lower than the hurdle rate the project is usually rejected.
As with any of the capital budgeting techniques even if the investment is acceptable from an internal rate of return standpoint.
Qualitative factors must still be considered before a final decision can be made.
In explaining the fundamental concepts of capital budgeting we have targeted on the numbers.
However, a discussion of capital budgeting is incomplete except bringing up elements that can’t be reduced to numbers.
Here we are going to consider three kinds of qualitative elements and investments effect on the quality of merchandise and services offered.
And investments impact the time with which merchandise and services can be produced and delivered to customers and different qualitative factors.
So ways we have made the dedication of whether or not a capital investment decision is a proper one.
Based entirely on the economic return computed the use of one of 4 methods.
If the economic return used to be advantageous our conclusion was once to invest.
If the economic return used to be negative we recommend that the project now not be undertaken.
However, organization have to cautiously manage and balance decisions throughout three vital components of decision-making.
Quality and time considerations can sometimes dictate that capital investment should be main even if the financial returns don’t justify the expenditure
If buying a new machine will help the company produce higher quality products or deliver those products to its customers faster.
The machine may be a good investment the impact of quality and time on capital budgeting decisions must not be underestimated.
In addition to quality and time, there are a number of other
qualitative factors that must be considered when making capital budgeting decisions.
These factors include such things as:
Pollution control and
Environmental Protection worker safety and the preferences of owners and management.
Many more examples could be mentioned but the point is that numbers alone do not control the investment decisions of a good manager.
Quality time and other qualitative, as well as quantitative factors, should be considered in reaching long term investment decisions.