Sbma7100D Financial Management And Assessment Answer

Module Learning Outcomes (from module syllabus)

1.Research, apply and evaluate a variety of financial assessment techniques for application to a case study.

2.Research, evaluate and critically discuss various issues and theoretical frameworks used in the management and control of financial resources.

Analyse, interpret and critically assess the financial position of a business, incorporating conclusions/recommendations and advice to managers/directors. \

Use a variety of techniques in the provision of managerial and financial information. Evaluate, assess and advise on issues highlighted from the information generated. Critically evaluate relevant aspects of techniques applied.

Part 1

Select a company whose shares are traded on the London Stock Exchange and is part of the FTSE 100 Index. Download its most recent annual report(s) covering the financial statements for the last 2 years.

Required:

You are required to present a business report to the directors of the company. Within your report you should:

Calculate profitability, liquidity, gearing, efficiency and investor ratios for a minimum of the past 2 years

Critically evaluate the ratios calculated. In your analysis. You should consider possible reasons for changes in ratios over the period and discuss the limitations of ratio analysis

Based on your analysis, make recommendations on how to improve the financial management of the company

You are also required to create a podcast (audio or video) of a maximum of 10 minutes summarising the contents of your report. This should be uploaded to Curatr. All students are required to comment on a minimum of 2 other students; podcasts via the online discussion forums.

Part 2

James Plc, who produce a variety of high quality garden furniture and associated items, is considering whether or not to invest in the potential to expand the business, the directors identifying three main options for a four-year plan:

A.Expand its flourishing retail outlet to include all products.
B.Develop into internet sales.
C.Produce greenhouses and conservatories.

These options would require initial expenditure of (A) £750,000, (B) £1,200,000, or (C) £2,000,000.  The most recent estimates on year-end cash flows is as follows:

Year 1    Year 2    Year 3    Year 4
£’000    £’000    £’000    £’000
(A)    400    500    500    500
(B)    500    600    800    1,000
(C)    500    1,000    1,500    1,500

Required:

Write a business report to the Directors explaining whether the company should undertake the project or look for other opportunities. The report should incorporate the following:

a.An evaluation of the three investment options using the net present value (NPV) technique, assuming the cost of capital to be 8%, and recommend, with reasons, one option.
b.Find the approximate internal rate of return (IRR) of your choice in (a) above.

c.Interpret your results for management, to include:

i.A presentation of the theoretical arguments for the choice of net present value as the best method of investment appraisal.
ii.Explain the continued popularity among decision makers of non-discounting methods of investment appraisal.
iii.Identify what other factors should be considered before an investment decision is made.

d.If funds are limited to £2,500,000 and the projects are divisible, (i.e. it is possible to undertake a fraction of a total project), calculate the optimal investment policy and the resulting total NPV from your investment policy.

Assume corporation tax is 20% and capital allowances are 25% on a straight line basis. All of these cashflows occur in the year that they arise.

In conclusion, advise the Board of James plc how the proposed investment programme might be financed, identifying the main sources of finance available, critically assessing the main advantages and disadvantages of each.

Part 3

Required:

Active participation on the weekly forum discussions