Finance and Accounting

Finance and Accounting

 
The assignment requires students to carry out calculations and make decisions based on an analysis of financial information. For task one they should use a set of published accounts that they have sourced (as in activities above). For other tasks, an example of the information that could be provided is given below. Other examples can be sourced in accounting text books.
Task 1
a) Using a set of published accounts from a real business organisation, carry out ratio analysis for two years (note: usually two years figure will be given in a set of published accounts). (1.3)
b) Comment on the business structure and financial structure of the organisation and the reporting requirements for the structure. Compare this with other possible business structures and explain the relative advantages of the structure of the chosen organisation. (1.1)
c) Compare the figures for two years and comment on the finances of the business. Explanations for changes should be sought and explained. Where information is not available, notes should be made about the information that is required. Note that additional information may be available in the financial press or on the Internet. (1.2, 1.3)
d) Advise a potential investor on investing in the business compared to placing money in a deposit account. (Current deposit account interest rates should be sourced from local banks or Internet for comparison). The investor has £50 000 (or equivalent in other currency) to invest. (1.2)
e) Suppose the business requires additional finance of £500 000. Advise on a suitable source of finance giving possible alternatives, implications of each and reasons for your recommendation. (2.1, 2.2, 2.3, 2.4)
f) Advise on how working capital can be effectively managed within the business using figures from the accounts and your calculated ratios to illustrate your answer. (3.3)

Task 2

a) Using given budgeting information, prepare a cash flow forecast and comment on the budget and cash flow. (3.1)
b) Make recommendations for managing cash flow and/or sourcing finance as required. (3.3)

Green Limited is a wholesaler. The budgeted income statements for 6 months are as follows:

Item Jun
£’000 Jul
£’000 Aug
£’000 Sep
£’000 Oct
£’000 Dec
£’000
Sales Revenue 114 118 124 104 96 92
Cost of goods sold (64) (66) (70) (59) (54) (52)
Salaries and wages (20) (20) (20) (20) (20) (20)
Electricity (6) (6) (8) (10) (12) (12)
Depreciation (6) (6) (6) (6) (6) (6)
Other overheads (4) (4) (4) (4) (4) (4)
Total expenses (100) (102) (108) (99) (96) (94)
Profit/loss for the month 14 16 16 5 0 (2)
Notes:
1. All customers are allowed one month’s credit. Sales for June were £106 000.
2. The opening bank balance is £90 000
3. Salaries and wages and other overheads are paid in the month they are incurred
4. Electricity is paid quarterly in arrears in September and December
5. Inventories purchases are made on one month’s credit. June’s purchases amount to £64 000.
6. At the end of September, the business needs to pay for a new delivery truck at £25 000
7. At the end of November, the business has agreed to pay £135 000 back to the bank to reduce a bank loan. This was before they realised they would need a new delivery van and was based on higher sales predictions for the last three months, which have had to be revised due to national recession.

Task 3

a) Assess the given projects using accounting rate of return, payback period, Net present values and internal rate of return. (3.2)
b) Make recommendations based on calculations and explain reasons for recommended choice. (3.3)

Hanley Manufacturing Limited has two potential projects. They can only invest in one project. The following information is available on the projects.

Project 1
£’000 Project 2
£’000
Cost (immediate outlay) 200 100
Expected annual operating profit (loss):
Year 1 58 36
Year 2 (2) (4)
Year 3 4 8
Estimated residual value of machinery 7 12

The business has an estimated cost of capital of 10% and uses the straight line method of depreciation for non-current assets. The business has sufficient funding to meet capital expenditure requirements for either project.
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