BIRMINGHAM CITY BUSINESS SCHOOL
POSTGRADUATE DEGREES
COURSEWORK FRONT SHEET
MODULE TITLE: Managerial Finance
MODULE CODE: ACC7032
LECTURER: Amerdeep Jakhu
ISSUE DATE: 30th January 2023
HAND IN DATE: 10th May 2023 at 12.00pm (midday)
HAND BACK DATE: 14th June 2023
| Learning outcomes and pass attainment level:
Evaluate the different competing financial objectives of the firm and the agency problem between shareholders and managers in publicly listed companies. Analyse financial data, conduct cost-benefit analysis and financial planning for effective business decisions using spreadsheet software package. Critically evaluate investment projects using appropriate investment appraisal techniques to assess suitability and viability of the projects consistent with the overall strategy and business model(s) of the firm. Critically appraise the major issues of capital management, relative advantages and disadvantages from the various perspectives of the stakeholders of the firm. |
General guidance
The assessment for this unit is one coursework assignment. The required mark has been set at 50%. If you are attempting a first or second re-sit attempt your pass mark will be capped at 50%.
This is an individual assessment. Whilst there is no objection to you discussing the content of this assignment with your peers, your final submission must be completely your own work. Plagiarism and copying will not be tolerated and may lead to subsequent penalties being imposed. This is an individual assignment and all calculations, analysis and narrative submitted must be your own work.
The assignment will require a considerable personal investment of time and effort.
Structure of the assignment
There are three separate questions included within the assignment and you should attempt all three questions. There is no word limit to questions. If any part of the assignment is ignored this reduces the maximum marks which could potentially be awarded. The assignment answer should be carefully checked before submission for the use of appropriate and acceptable grammar. The correct use of English spelling is to be employed throughout.
All the numbers should be reported in 2 decimal points.
Submission of the assignment
All three questions must be attempted and submitted in one document. You are advised to prepare your assignment in Word format and copy and paste contents from Excel where spreadsheets have been used to support your work. Only Microsoft Word file will be allowed for submission.
Your student ID number should be shown on each page of your assignment.
Your assignment should be submitted electronically via Moodle and you are advised to do this well in advance of the submission deadline to avoid any system related issues. Feedback on your assignment will also be provided via Moodle once the marking has been completed.
Marking of the assignment
The matrix on the following page has been provided to assist you in completing your assignment and is an indicative guide only, not a formal marking scheme.
Indicative marking guide
|
Fail (0%-49%) |
Pass (50%-59%) |
Commendation (60%-69%) |
Distinction (70%-100%) |
| Question 1 LO1 | |||
| A lack of breadth and depth of financial analysis techniques accompanied by incorrect formulae or calculation without appropriate explanation.
Poor layout or presentation in anything other than business report style. Inadequate grammar and lacking in overall knowledgeable synthesis. |
Evidence of some financial analysis techniques but with errors of formulae and calculation with insufficient explanation and adequate presentation.
Attempt at a business report format with some supportive appendices. Mainly descriptive with some attempt at synthesis. Grammar and structure being adequate. |
Wide range of financial analysis techniques evident and supported by full disclosure of formulae and accurate calculation in a clear format.
Presented in business report format and coherently structured. Supported by referenced appendices. Effective and well-reasoned narrative discussion. |
An excellent range of financial analysis techniques which are supported by full disclosure of formulae and accurate calculation in a clear format.
Excellent business report format and well structured. Supported by fully referenced appendices. Excellent analytical and justified explanations showing synthesis and application. |
| Question 2 LO2, LO3 and LO4 | |||
| A lack of understanding of management accounting and decision making. Unable to produce the correct format and calculations. Limited or no narrative discussion or recommendations and conclusions. Poor academic writing and referencing. | Ability to apply some management accounting decision making techniques. Demonstrates an adequate understanding of the principles and techniques involved. Reasonable attempt at analysis and discussion of findings, though of limited depth. | A good application of management accounting for decision making. Demonstrates a good understanding of the principles and techniques involved. Good analysis and discussion of findings, with good use of academic references which support clear and well explained conclusions. | Excellent application and understanding of management accounting for decision making. Thorough and detailed critical discussion with excellent use of a range of academic references which support clear, practical, and well explained recommendations and conclusions. |
| Questions 1,2 and 3 | |||
| A lack of understanding of the topic and the related literature. Limited or no narrative discussion or recommendations and conclusions. Poor academic writing and referencing. | Ability to research and apply theory to a reasonable degree.
Demonstrates the ability to critically evaluate and make the appropriate conclusions. Reasonable attempt at analysis and discussion of findings, though of limited depth. |
A good understanding of the topic. Demonstrates a good understanding of the principles and techniques involved. Good analysis and discussion with good use of academic references which support clear and well explained conclusions. | Excellent understanding of the topic. Thorough and detailed critical discussion with excellent use of a range of academic references which support clear, practical, and well explained recommendations and conclusions. |
Question 1
The scenario
Seiko Holdings Plc is based in Birmingham, United Kingdom serving UK and Europe. Seiko Holdings Plc is headed by Clara Chou a seasoned Psychologist who has a strong love for great living spaces believing this improves mental health and longevity. It operates from a rented Head Office premises in central Birmingham with a Shared Services Centre serving the group. Seiko Holdings Plc has investments and interests in Healthcare Industry (Adult Care) and Hospitality Industry (offering packaged holiday services).
The Health & Social Care business operating under the name Seiko Care Solutions (SCS) rents properties which SCS tailor to cater for the needs of the service users and maintains per Care Quality Commission (CQC) standards and personal care plans. SCS lost two paralysed service user contracts following a complaint for a delayed completion of disabled toilets renovation project. Under Sheila Roberts as Managing Director (a qualified Mental Health Nurse), SCS had enjoyed year-on-year growth, however profitability has (since January 2020) been heavily impacted by various macro factors in the UK affecting such costs as food costs, energy costs and property costs etc.
Seiko Holdings Plc operates in the hospitality sector under the name Seiko Spaces (SS) where it owns and operate a Bed and Breakfast (B&B) chain with strategic business relationships with a prominent UK and Regional Europe passenger aeroplane business based in London. SS owns the B&Bs it runs and plans to expand its chain. SS is run by Parndeep Singh (Managing Director) a travel enthusiast with a knack for spotting profitable destinations and routes. Under Parndeep Singh’s eight year leadership, SS has maintained strong year-on-year growth and profitability until 2020 when profitability and growth declined despite the demise of Thomas Cook in September 2019 and due to COVID-19, Brexit and many other macro factors in the UK. On reviewing the unpleasant profitability position, Clara Chou demanded for the position to improve citing Thomas Cook’s demise in September 2019 as an opportunity for growth and improved profitability for SS.
Following deliberations, Seiko Holdings Plc Strategic Business Committee recommended that Seiko Group should acquire a good fit for strategic synergistical benefits to Seiko Holdings Plc for improved growth and profitability. The identified two possible acquisition targets and would want you to perform some ratio analysis, evaluate the findings and advise the committee on which one they should acquire and why. The target companies are below:
PureCare Solutions Ltd: A prominent profitable Health and Social Care business offering Supported Living services to past offenders on path roto community rehabilitation and mental health patients. PureCare Solutions Ltd has a strong network of support teams and has maintained an Outstanding Rating from Care Quality Commission for the past 7 years under the leadership of the current Managing Director who has been in charge for the past 10 years.
Kindra Properties Ltd: Led by founder Kindra Peters a seasoned Property Developer and Architecture, Kindra Properties Ltd has delivered various property development projects, renovations and has a successful Buy, Revamp, Rent, Refinance and Repeat (BRRRR) portfolio and strategy. Three of its BRRR properties are leased to Supported Living Services and have state of the art tailored bathrooms and play areas. The other properties are leased to a company operating them as Bed and Breakfast properties.
Below are the target companies’ extracts from their financial statements:
|
Statements of Profit or Loss (SoPL) for the year ended 31 December 2022 |
|||||
|
PURECARE SOLUTIONS |
KINDRA PROPERTIES |
||||
|
£ |
Vertical Analysis |
£ |
Vertical Analysis |
||
|
Turnover |
756,345 |
100% |
765,101 |
100% |
|
|
|
|
|
|
||
|
Cost of sales |
(471,783) |
62.38% |
(410,320) |
53.63% |
|
|
__________ |
|
__________ |
|
||
|
Gross profit |
284,562 |
37.62% |
354,781 |
46.37% |
|
|
|
|
|
|
||
|
Administrative and other operating expenses |
(213,420) |
28.22% |
(130,421) |
17.05% |
|
|
__________ |
|
__________ |
|
||
|
Net Operating Profit |
71,142 |
9.41% |
224,360 |
29.32% |
|
|
|
|
|
|
||
|
Finance charges |
(6,193) |
0.82% |
(47,098) |
6.16% |
|
|
__________ |
|
__________ |
|
||
|
Profit on ordinary activities before taxation |
64,949 |
8.59% |
177,262 |
23.17% |
|
|
|
|
|
|
||
|
Tax on profit on ordinary activities |
(12,340) |
1.63% |
(33,680) |
4.40% |
|
|
__________ |
|
__________ |
|
||
|
Profit for the year |
52,609 |
6.96% |
143,582 |
18.77% |
|
|
__________ |
|
__________ |
|
||
|
Statements of Financial Position (SoFP) as at 31 December 2022 |
||||||
|
PURECARE SOLUTIONS |
KINDRA PROPERTIES |
|||||
|
£ |
Vertical Analysis |
£ |
Vertical Analysis |
|||
|
Fixed assets |
|
|
|
|
||
|
Tangible assets |
465,734 |
58.89% |
1,045,980 |
90.65% |
||
|
Total Non Current Assets |
465,734 |
58.89% |
|
1,045,980 |
90.65% |
|
|
Current assets |
|
|
|
|
||
|
Trade receivables |
301,298 |
38.10% |
40,345 |
3.50% |
||
|
Cash at bank and in hand |
23,765 |
3.01% |
67,542 |
5.85% |
||
|
Total Current Assets |
325,063 |
41.11% |
|
107,887 |
9.35% |
|
|
|
|
|
|
|||
|
Total Assets |
790,797 |
100.00% |
|
1,153,867 |
100.00% |
|
|
|
|
|
|
|||
|
Liabilities |
|
|
|
|
||
|
Current Liabilities: Trade payables |
14,654 |
1.85% |
60,762 |
5.27% |
||
|
Non-Current Liabilities: Bank Loans |
76,459 |
9.67% |
735,908 |
63.78% |
||
|
Total Liabilities |
91,113 |
11.52% |
|
796,670 |
69.04% |
|
|
|
|
|
|
|||
|
Equity and reserves |
|
|
|
|
||
|
Called up share capital |
1 |
0.00% |
3 |
0.00% |
||
|
Retained Profit |
699,683 |
88.48% |
357,194 |
30.96% |
||
|
Total Equity |
699,684 |
88.48% |
|
357,197 |
30.96% |
|
|
|
|
|
|
|||
|
Total Equity and Liabilities |
790,797 |
100.00% |
|
1,153,867 |
100.00% |
|
The ratio analysis below is in 4 categories (Profitability, Liquidity, Management Efficiency, and Gearing), but is incomplete.
Requirements
You are required to calculate ratios for Kindra Properties. (11 marks)
Prepare a business report (using a proper report format), maximum 2 pages long (+/- 10%), to Seiko Holdings Plc Strategic Business Committee based on ratio analysis and relevant qualitative issues to be considered. Your 800-word report must evaluate the financial statements and ratio analysis and make a convincing argument for investment in one of the two target companies. Your analysis, conclusions and recommendations should be supported by credible academic references (in Harvard Referencing format per Birmingham City University policy) using proper academic/ business English. (800 words, 19 marks)
Critically evaluate the working capital management (WCM) of both companies including some qualitative aspects and draw conclusions on which is stronger. (200 words, 5 marks)
Prepare a table with possible sources of finance Seiko Holdings Plc should consider to finance the investment in either PureCare Solutions Ltd or Kindra Properties Ltd. Critically evaluate the options you have identified and make a well-reasoned, and well-referenced, conclusion and recommendation(s). (350 words, 5 marks)
Question 1 Totals: 1350 words, 40 marks
Marking guide
Carefully examine the marking guide below to ensure that you structure your answer to include every element:
|
Mark allocation |
RATIO CALCs |
INTERPRETATION |
OTHER |
TOTAL marks |
|
|
Q1.1 |
|
|
|
|
|
|
Profitability |
1+1+1+1 |
1+1+1+1 |
|
8 |
|
|
Liquidity |
1 |
2 + 1 |
|
4 |
|
|
Management efficiency |
2 + 1 |
2 + 2 |
|
7 |
|
|
Gearing |
2 |
2 + 2 |
|
6 |
|
|
Conclusion & recommendation |
|
|
2 |
2 |
|
|
Credible academic citations |
|
|
2 |
2 |
|
|
|
Layout, structure and grammar |
|
|
1 |
1 |
|
Q1.2 Working Capital Management |
|
|
5 |
5 |
|
|
Q1.3 Sources of finance |
|
|
5 |
5 |
|
|
Total |
11 |
14 |
15 |
40 |
|
Question 2a
Overview
You are employed by Mobility Global (MG) as a Senior Management Accountant. Like other businesses, MG has been exposed to challenges facing the UK including Brexit, COVID-19, The Russo-Ukranian War, UK Political Dynamic, Interest Rates and Inflation to name but a few. MG produces and sells three types of special personal mobility equipment directly to National Health Service (NHS) and Care Homes across the United Kingdom.
MG’s profitability has been on a decline over the past years. Below is MG’s overall performance for the month of December 2022. In view of the huge capital investment made, MG’s directors are considering ways to improve this mediocre performance.
Upon considering the data below in the Executive Committee Meeting, Clara Zoul the Operations Director and five other directors share the same understanding and view that production of Hoists and Mobile Beds must be stopped if profitability is to improve in 2023.
Fixed overheads were apportioned based on the floor area occupied. You spot that marginal costing would show the results differently and may affect the directors’ decision.
Mobility Global’s Product Financial Performance Report for the month of December 2022
|
Wheelchairs |
Hoists |
Mobile Beds |
Total |
||
|
Units sold |
60 |
75 |
120 |
||
|
Turnover |
|
33,600.00 |
47,250.00 |
56,400.00 |
137,250.00 |
|
Costs |
|
|
|
|
|
|
Direct Material |
(7,728.00) |
(25,042.50) |
(27,636.00) |
(60,406.50) |
|
|
Direct Labour |
(5,712.00) |
(14,647.50) |
(14,100.00) |
(34,459.50) |
|
|
Other Variable Expenses |
(3,024.00) |
(9,450.00) |
(5,640.00) |
(18,114.00) |
|
|
Fixed Overheads |
(11,560.00) |
(25,840.00) |
(30,600.00) |
(68,000.00) |
|
|
Profit /(Loss) |
|
5,576.00 |
(27,730.00) |
(21,576.00) |
(43,730.00) |
Task 1
Parndeep Kaur, the Finance Director is busy on some strategic forecasts and has requested you to prepare a report to MG’s directors concerning the proposal to cease Hoists and Mobile Beds production.
Using your knowledge of Management Accounting and Marginal Costing, clearly showing calculations and using appropriate, credible references, critically analyse Mobility Global’s product viability and the proposal to cease the production of Hoists and Mobile Beds. You are to:
Prepare a Marginal Costing Statement for each product and total for the month of December 2021. [4 marks]
Based on the contribution you calculated in part (a) above, advise if MG should stop the production of Hoists. Prepare a Marginal Costing Statement showing the results if MG stops making Hoists. [2 marks]
Based on the contribution you calculated in part (a) above, advise if MG should stop the production of Mobile Beds. Prepare a Marginal Costing Statement showing the results if MG stops making Mobile Beds. [2 marks]
In addition to the calculations and your recommendations above (whether to cease production of Hoists and Mobile Beds), critically discuss the qualitative issues to be considered by Mobility Global’s board in making the decision. [4 marks]
Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm comparing it to Absorption Costing technique. [3 marks]
Question 2a Totals: 400 words/equivalent, 15 marks
Question 2b
As a Neptune Holdings Plc junior management accountant, the Finance Director wants your calculations and recommendation regarding an expansion plan the Board is considering, which includes a chain of factory outlet stores.
Below are the figures for the first one that is planned for a central Manchester location next year.
Company policy dictates that any decision should be based on the results of calculating Net Present Value (NPV) of 3 years of cash flows using a cost of capital of 12%, Payback Period (PBP) must be less than 3 years, and the Internal Rate of Return (IRR) of the project should provide a 5% cushion in case of increases in inflation or interest rates.
The initial investment investment consists of £100,000 for the land, building costs of £158,000, and £36,600 for fittings and equipment.
The cash flows in year 1 are expected to be: total sales revenue £600,600; the cost of Alpha products sold £165,900; Beta stock sold £118,860; staff costs £24,780; light & heat £35,196; other overheads £134,904. The cash flows for years 2 and 3 are the same as those in the first year, however expected increase by 2% inflation each year.
Requirements for Question 2 part (b)
Using the information above and in accord with the above stated company policy you are required to calculate:
Net Present Value (NPV) [4 marks]
Payback period (PBP) and Discounted Payback Period (DPBP) [4 marks]
Internal Rate of Return [1 mark]
Based on your calculations do you recommend the investment is made and the new outlet store is built? [2 marks]
Critically discuss the limitations of the above project appraisal techniques used and any other recommendations on issues the board that must be considered before making final investment decision . [4 marks]
Question 2b Totals: 300 words/equivalent, 15 marks
|
Question 3 |
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|
Euro Engineering Ltd manufactures three types of ceramic coffee percolator; the Metal, pink and the Zinc models. The maximum market demand and resource requirements of each of these products are shown below. |
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|
The percolators are made from an advanced heat-resistant material that gives the firm a competitive advantage. An email from the purchasing manager has informed you that, because of a problem with the supplier, it should be assumed that the half year’s supply of this special material is limited to 80,000kg. |
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|
Euro Engineering Ltd operates on a just-in-time production (JIT) method so that opening and closing inventory levels are zero. |
|||||||||||
|
The sales director has already accepted an order for 5,000 Metal percolators that, if not fulfilled, would incur a financial penalty of £12,000. This order is included in the Gold’s maximum market demand figure. |
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|
Continental’s directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether it should consider breaching the contract and incurring the penalty. The selling prices, raw material costs, labour costs and other variable overheads rates per unit for 2023 financial year will be the same as those in 2022. |
|||||||||||
|
Budgeted data for the first year ended 2023 |
|||||||||||
|
|
Metal |
Pink |
Zinc |
||||||||
|
Maximum demand |
8,000 |
8,000 |
9,000 |
||||||||
|
Heat resistant material per unit |
3 Kg |
5 Kg |
4 Kg |
||||||||
|
Actual results for August 2022 |
|||||||||||
|
|
Metal |
Pink |
Zinc |
Total |
|||||||
|
Sales (units) |
7,500 |
5,000 |
4,300 |
16,800 |
|||||||
|
Sales revenue (£) |
190,000 |
160,000 |
450,000 |
800,000 |
|||||||
|
Raw materials (£) |
66,000 |
76,000 |
134,000 |
276,000 |
|||||||
|
Direct labour (£) |
26,400 |
29,000 |
110,000 |
165,400 |
|||||||
|
Semi-Variable Overheads (£) |
67,200 |
48,000 |
90,000 |
205,200 |
|||||||
|
Total Costs |
159,600 |
153,000 |
334,000 |
646,600 |
|||||||
|
Profit / (Loss) (£) |
30,400 |
7,000 |
116,000 |
153,400 |
|||||||
|
Actual results for August 2021 |
|||||||||||
|
|
Metal |
Pink |
Zinc |
Total |
|||||||
|
Sales (units) |
8,000 |
6,000 |
6,700 |
20,700 |
|||||||
|
Sales revenue (£) |
202,667 |
192,000 |
701,163 |
1,095,829 |
|||||||
|
Raw materials (£) |
65,000 |
76,000 |
222,000 |
363,000 |
|||||||
|
Direct labour (£) |
28,000 |
23,500 |
190,000 |
241,500 |
|||||||
|
Semi-Variable Overheads (£) |
70,000 |
49,000 |
130,000 |
249,000 |
|||||||
|
Total Costs |
163,000 |
148,500 |
542,000 |
853,500 |
|||||||
|
Profit / (Loss) (£) |
39,667 |
43,500 |
159,163 |
242,329 |
|||||||
Required:
Use management accounting techniques for example High-Low Method where applicable.
3.1 Applying marginal costing techniques, rank the products [6 marks]
3.2 Prepare a budgeted production schedule and a marginal cost income statement (analysed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract honoured [8 marks]
3.3 Prepare a budgeted production schedule and a marginal cost income statement (analysed by product including the total) for the year ending 31 August 2023 assuming that the Metal contract IS NOT honoured [8 marks]
3.4 Considering calculations above and other qualitative issues, advise Euro Engineering Ltd directors whether to honour or dishonour the Metal Percolator Contract [3 marks]
3.5 Budgeting serves various purposes including planning, control, motivation and communication. You have been requested by Clara Ores the Finance Director to explain to Euro Engineering Ltd directors the importance of budgeting in light of the purposes above [5 marks]
Question 3 Totals: 600 words/equivalent, 30 marks
END