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Extended Diploma in Management & Leadership

Unit No: 13

Unit Title: Managing Financial Principles and Techniques

Assignment No: 1

Assignment Title: Financial and Investment analysis

Date Set: 27th January 2014

Due Date: 18th April 2014

Learning Outcomes Covered:

1. Be able to apply cost concepts to the decision-making process2. Be able to apply forecasting techniques to obtain information for decision

making3. Be able to participate in the budgetary process of an organisation4. Be able to recommend cost reduction and management processes for an

organisation5. Be able to use financial appraisal techniques to make strategic investment

decisions for an organisation6. Be able to interpret financial statements for planning and decision-making.

GRADING OPPORTUNITIES AVAILABLEOutcomes/ Grade Descriptors P1.1 P1.2 P1.3 P21 P2.2 P3.1 P3.2 P3.3 P3.4 P4.1

√ √ √ √ √ √ √ √ √ √

Outcomes/ Grade Descriptors P4.2 P5.1 P5.2 P5.3 P6.1 P6.2 P6.3√ √ √ √ √ √ √

OUTCOMES/GRADE DESCRIPTORS ACHIEVED (please tick)

Outcomes/ Grade Descriptors P1.1 P1.2 P1.3 P21 P2.2 P3.1 P3.2 P3.3 P3.4 P4.1

Outcomes/ Grade Descriptors P4.2 P5.1 P5.2 P5.3 P6.1 P6.2 P6.3

COMMENTS:

Assessor: Korsima Lindsay Signature: Date:

IV COMMENTS:

IV: Signature: Date:

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Financial and Investment AnalysisAssignment BriefScenario 1London Manufacturing company (LMC) is a profit making company. At present, it is producing

and selling a single product on a semi automated machine on a mass scale and adopting full cost

plus profit approach while pricing its product. However, it is planning to expand its business and

make the manufacturing facilities as flexible manufacturing facilities with fully automated

production environment to meet the requirements of various customers by producing 5 improved

products over the existing one. Mr John Williams, the CEO of the company decides the targets and

communicates the targets set by him at the beginning of each year. His prime objective is profit

maximisation and he reviews the performance of organisation as well as of managers at the end of

each year.

(You can choose your own company)

Based on the costs records, the costs and revenues for last 6 months are as follows

Month Number of units Costs

(Amount in £ ’000)

Revenue(Amount in £

‘000

July 10000 1500 2500

August 12500 175

0

2750

September 14250 1925 2925

October 18000 2300 3300

November 21500 2650 3650

December 24300 2930 3930

The budgeted performance and actual performance for the last year based on financial records are

as follows

Details Budgets Actual

Sales quantities 300000 240000

Sales revenue £ 3.5 mill £ 3.00 mill

Material cost £ 1.2 mill £ 1.10 mill

Labour cost £ 0.80 mill £ 0.60 mill

Other direct costs £ 0.10 mill £ 0.08 mill

Fixed production costs £ 0.50 mill £ 0.50 mill

Fixed on production costs £ 0.25 mill £ 0.30 mill

On conducting research it identified two alternative investment avenues as detailed below for its

expanded business

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Alternative 1 Alternative 2

Investment amount £1 million

Disposal proceeds £200000

Demand (in units) 1st yr 500000 2nd yr 600000

3rd yr 800000

The initial investment will be made on the first

day of the new accounting year

The selling price per unit is expected to be £3

and the variable cost is £2 per unit. Both these

figures are given in today’s terms

Tax paid at 30% one year after the accounting

period concerned

Tax depreciation is at 25% on reducing

balance

The real cost of capital is 8% and the general

inflation is 5%. However, the selling price is

expected to inflate at 3% and variable costs by

5% PA

Investment amount £ 1 million

Disposal proceeds £ 100000

Demand (in units ) 1st yr 200000 2nd yr 250000

3rd yr 300000

The initial investment will be made on the first

day of the new accounting year

The selling price per unit is expected to be £5

and the variable cost is £3 per unit. Both these

figures are given in today’s terms.

Tax paid at 30% one year after the accounting

period concerned

Tax depreciation is at 40% on reducing

balance

The real cost of capital is 10% and the general

inflation is 5%. However, the selling price is

expected to inflate at 2% and variable costs by

3%

Scenario 2The summarised financial statements of three different companies for the year 31st December 2013

is as follows

Summarised statement of financial positions as on 31st December 2013 Particulars London

Manufacturing co

31st December 2013

£ ’000

Leeds Trading co.

31st December 2013

£ ’000

Oxford Exports Ltd.

31st December 2013

£ ’000

Non-current assets less depreciation

Current assets

Inventory

Receivables

Cash

Total assets

Equity and liabilities

Share capital

400

500

100

2200

1000

3200

350

400

50

1800

800

2600

1000

1500

500

5000

3000

8000

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Ordinary share capital (1£ each)

Preference shares (10%) (1£ each )

Reserves

Non-current liabilities

Loan notes 10% secured

Current liabilities

Payables

Corporate tax

Dividends

Total equity and liabilities

400

100

100

1000

200

800

2000

600

600

3200

500

50

50

1000

200

300

1500

500

600

2600

800

600

100

1000

3000

1000

5000

1500

1500

8000

Summarised income statement for the year ended 31st December 2013

ParticularsLondon

Manufacturing Co.31st December 2013

£ ’000

Leeds Trading Co.31st December

2013£ ‘000

Oxford Exports Ltd.

31st December 2013

£ ‘000

Revenue

Cost of sales

Gross profit

Operating expenses

Operating profit

Interest

Profit before tax

Taxation

Profit after taxation

Ordinary dividend proposed

and paid

Preference dividend

Retained profit for the year

Quoted price of share

3000

(2000)

1000

(600)

400

(60)

340

(180)

160

125

20

15

1.40

2500

(1800)

700

(500)

200

(40)

160

(100)

60

20

20

20

1.22

8000

(6500)

1500

(1000)

500

( 100)

400

(200)

200

20

100

80

0.80

Tutor Notes

Your assignment should be handed in by the deadline.

This assignment must be your own work and original.

All sources of reference must be included .

You will be expected to check spelling mistakes and grammar.

Your name, student no and unit no should be in the footer of every page.

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Your answer must be in report format

All relevant working must be shown clearly

Tasks

Suppose that you, as a finance manager in a business organisation called London Manufacturing co,. Your tasks are, therefore, going to be as follow.Task 1

In this first task, you need to apply cost concepts to the decision-making process based on scenario 1. To do that, you need to:

1.1 Explain the importance of costs in the pricing strategy of an organisation (not more than 600 words)

1.2 Design a costing system for use within an organisation

1.3 Propose improvements to the costing and pricing systems used by an organisation (not more than 400 words)

Task 1 covers assessment criteria 1.1, 1.2, 1.3

Task 2

In this second task, you need to apply forecasting techniques to obtain information for decision-making based on scenario 1. To do that, you need to:

2.1 Apply forecasting techniques to make cost and revenue decisions in an organisation

2.2 Assess the sources of funds available to an organisation for a specific project (not exceeding 1000 words)

Task 2 covers assessment criteria 2.1, 2.2

Task 3In this third task, you need to participate in the budgetary process of an organisation based on scenario 1. To do that, you need to

3.1 Select appropriate budgetary targets for an organisation

3.2 Participate in the creation of a master budget for an organisation

3.3 Compare actual expenditure and income to the master budget of an organisation

3.4 Evaluate budgetary monitoring processes in an organisation

Task 3 covers assessment criteria 3.1, 3.2, 3.3, 3.4

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Task 4

In this fourth task, you need to recommend cost reduction and management processes for an organisation based on scenario 1. To do that, you need to

4.1 Recommend processes that could manage cost reduction in an organisation (not more than 500 words)

4.2 Evaluate the potential for the use of activity-based costing

Task 4 covers assessment criteria 4.1, 4.2

Task 5

In this fifth task, you need to be able to use financial appraisal techniques to make strategic investment decisions for an organisation based on scenario 1. To do that, you need to:

5.1 Apply financial appraisal methods to analyse competing investment projects in the public and private sector

5.2 Make a justified strategic investment decision for an organisation using relevant financial information

5.3 Report on the appropriateness of a strategic investment decision using information from a post audit appraisal (not more than 500 words)

Task 5 covers assessment criteria 5.1, 5.2, 5.3

Task 6In the sixth task, you need to be able to interpret financial statements for planning and decision making based on scenario 2 . To do that, you need to:

6.1 Analyse financial statements to assess the financial viability of an organisation

6.2 Apply financial ratios to improve the quality of financial information in an organisation’s financial statements

6.3 Make recommendations on the strategic portfolio of an organisation based on its financial information (not more than 300 words)

Task covers assessment criteria 6.1, 6.2 and 6.3

Criteria for PASS

Learning outcomes Assessment criteria1 Be able to apply cost concepts to thedecision-making process

1.1 explain the importance of costs in the pricing strategy of an organisation1.2 design a costing system for use within an organisation1.3 propose improvements to the costing and pricing systems used by an organisation

2. Be able to apply forecastingtechniques to obtain information fordecision making

2.1 apply forecasting techniques to make cost and revenue decisions in an organisation2.2 assess the sources of funds available to an organisation for a specific project

3 Be able to participate in thebudgetary process of an organisation

3.1 select appropriate budgetary targets for an organisation

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3.2 participate in the creation of a master budget for an organisation3.3 compare actual expenditure and income to the master budget of an organisation3.4 evaluate budgetary monitoring processes in an organisation

4 Be able to recommend cost reductionand management processes for anorganisation

4.1 recommend processes that could manage cost reduction in an organisation4.2 evaluate the potential for the use of activity-based costing

5 Be able to use financial appraisaltechniques to make strategicinvestment decisions for anorganisation

5.1 apply financial appraisal methods to analyse competing investment projects in the public and private sector5.2 make a justified strategic investment decision for an organisation using relevantfinancial information5.3 report on the appropriateness of a strategic investment decision using information from a post audit appraisal

6 Be able to interpret financialstatements for planning and decisionmaking

6.1 analyse financial statements to assess the financial viability of an organisation6.2 apply financial ratios to improve the quality of financial information in an organisation’s financial statements6.3 make recommendations on the strategic portfolio of an organisation based on its financial information