UNIVERSITY OF SUNDERLAND LEVELM MODULE:FINANCIAL MANAGEMENT & CONTROL ASSIGNMENT CODE:PGBM01 TUTOR:Mr. Sum DUE DATE:20/01/2012 Return date:20/01/2012 Assessment weight:100% of module Outcomes Assessed: All module learning outcomes, knowledge and skills, are assessed in this assignment. This assessment is in four parts, please answer all elements. Please note that this is an individual assignment and the policy of the University on “Policy on Cheating, Collusion and Plagiarism” applies.
Please write your Tutor’s name clearly on the front of the assignment. Part A Prospect Plc2 You are a financial analyst at Prospect Plc; a public limited company specialised in manufacturing and distributing office furniture. The Board of Directors have looked into the financial statements of the company for the last two years and have raised a concern about the company’s profitability and liquidity.
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The financial statements of Prospect for the last two years are given below Profit and loss account for the year ended 31 December | | 2011 | 2010 | | |? 000 |? 000 |? 000 |? 00 | |Sales | |12,650 | |11,000 | |Cost of sales: | | | | | | Opening stock | 250 | | 200 | | | Manufacturing costs |6,880 | |5,200 | | | Closing stock | 350 | | 250 | | | | | 6,780 | | 5,150 | |Gross profit | | 5,870 | | 5,850 | |Selling and distribution expenses |2,100 | |1,150 | | |Administrative expenses |1,250 | |1,200 | | |Bad debts written off | 350 | | 150 | | | | | 3,700 | | 2,500 | |Operating profit before interest and tax | | 2,170 | | 3,350 | |Interest payable | | 500 | | 350 | |Profit before tax | | 1,670 | | 3,000 | |Income tax | | 590 | | 1,100 | |Profit after tax | | 1,080 | | 1,900 | |Dividends paid | | 80 | | 50 | |Retained profit for the year | | 1,000 | | 1,850 | Balance sheet as at 31 December | | 2011 | 2010 | | |? 000 |? 000 |? 000 |? 00 | |Property, plant and equipment (net) | | | | | |Land and building | |3,200 | |3,000 | |Equipment | | 2,800 | |2,250 | |Motor vehicles | | 1,000 | | 550 | | | |7,000 | |5,800 | |Current assets | | | | | |Cash | -0- | | 300 | | |Stock | 350 | | 250 | | |Trade debtors |4,500 | |2,500 | | | | | | | | |Current liabilities | | | | | |Trade creditors |2,400 | |2,000 | | Other creditors (including taxation) | 500 | | 400 | | |Bank overdraft | 100 | | -0- | | |Net current assets | | 1,850 | |650 | | | |8,850 | |6,450 | |Non-current liabilities | | | | | |Loan capital | |3,500 | |2,800 | | | |5,350 | |3,650 | |Equity | | | | | |Ordinary shares of ? each | |3,700 | |3,000 | |Retained profit | |1,650 | | 650 | | | |5,350 | |3,650 | Required: 1) Prepare a report for the Board of Prospect plc which evaluates the performance of Prospect in relation to profitability, liquidity, gearing and asset utilisation. Your report must be supported by the calculation of relevant ratios in the four evaluation areas mentioned above (25%) ) Discuss ratio analysis as a tool for interpretation so that the Board may better understand the value and limitations of ratio analysis (5%) 3) Calculate the Working Capital Cycle in days for Prospect Plc based on the information above, assuming 365 days, for the years 2011 and 2010 AND comment on the company’s liquidity position in 2011 compared to 2010. (round to the nearest day) (10%) All calculations should be clearly shown and should be made to the nearest ? 000. Total for part A: 40% Part B Norfolk Ltd is specialized in producing and selling air conditions. In 2010, the manufacturing cost per unit included: | |? |Direct material |200 | |Direct labor (20 minutes per unit) |90/hour | |Variable manufacturing overhead |30 | |Variable selling expenses |50 | |Variable administrative expenses |10 | Fixed costs for the year ended 31 December 2010 were: | |? 00 | |Fixed manufacturing |1,500 | |Fixed selling and distribution |1,700 | |Fixed administrative |800 | The company produced and sold 275,000 units at ? 400 per unit. In 2011, management has decided to increase the selling price by 15% and to maintain the same contribution margin ratio as last year. This increase in price is o meet an increase of ? 2,440,000 in fixed costs in 2011. The company has produced and sold the same quantity in 2011 as last year. 1) Calculate the break-even point in units for the two years 2010 and 2011 and comment on the results (10%) 2) Calculate the safety margin for both years and comment on the results (5%) 3) In the light of your answer to the previous two points, evaluate the company’s policy in increasing the price by 15% in 2011 (5%). Total for part B: 20% Part C Nere is currently making investment appraisals of two potential long-term supermarket projects, A and B. Both projects require the same initial investment of ? 20m.
The following ratios have been calculated for the projects. RatiosProject AProject B Payback period (years) 5 6 Accounting Rate of Return (ARR %) 15 18 Net Present Value (NPV ? m in 15 years) 120 145 Internal Rate of Return (IRR %) 16 14 You are required to provide recommendations to the directors for a choice of either project A or project B. Nere is not able to undertake the above two projects at the same time or a mixed project of A and B. Total for part C: 20% Part D Explain and critically evaluate a) The relevance of committed fixed costs in deciding the optimal mix of products to maximise a company’s profit and the importance of relevant nformation for decision making purposes (10%) b) The use of budgets as a means of planning and controlling the various business activities (10%) Total for part D: 20% Notes: 1. To obtain a high mark, you should: a) Make your report concise, precise and well presented and structured; b) Draw logical conclusions from accounting information; c) Synthesise information in a coherent and useful way; d) Show evidence of key text and background reading; e) Incorporate your knowledge into an integrated piece of work; f) Demonstrate critical understanding of financial management. 2. A Harvard standard referencing is required for the report Maximum 3,000 words overall.