PGBM134: Finance and Project Management Assessment

PGBM134: Finance and Project Management Assessment

Introduction

This report seeks to explain the concept of financial management of the company. In the first part of the report the application of investment appraisal and ratio analysis in KK Smith and Sons Plc like payback period, ROCE and net present value, is explained. Apart from it, ratios which predict the efficiency, liquidity, and turnover will be analyzed. In the second part of the report the demonstration management and financial tools for Concrete Masonry Corporation designs and manufactures, like project scope statement, work breakdown structure, cost appraisal techniques and net work diagram for the project will be explained.

Part A

Question 1

1. Investment techniques

1. Payback period

Payback period refers to the time period which the investment takes to return the amount invested. It is also an indication to reach the breakeven point. It is preferable to have a shorter payback period as company will be able to achieve the investment amount in less time.

Advantages

• This concept is simple and easy to understand and operate

• It gives quick and reliable results

• This will predict the liquidity of the investment

Disadvantages

• Payback ignores the concept of time value of money

• This ignores the concept of profitability from investment

• It neglects the project return on investment (Jaunty 2017).

Payback period of Project X

Year	Project X	Cumulative Frequency
0	-110000	0
1	45000	45000
2	45000	90000
3	30000	120000
4	30000	150000
5	20000	170000

Payback period of project X is 2.6 years.

Payback period of project Y

Year	Project Y	Cumulative Frequency
0	-200000
1	50000	50000
2	50000	100000
3	50000	150000
4	100000	250000
5	55000	305000

Payback period of project Y is 3.5 years

Decision: It is advisable for the company to invest in Project X because the payback period is shorter and the company will get back the amount invested in less time as compared to Project Y.

2. Net present value

Net present value is that investment technique in which the company can monitor the profitability of the investment. It is the difference between present value of cash flow and current cash inflows. It is preferred to have larger net present value as it will be more profitable.

Advantages

• It will take in account the concept of time value of money.

• This concept helps in decision making in terms of the investment decision

Disadvantages

• This concept is not suitable to compare project of different sizes

• It does not consider the hidden cost in an investment (Efinancemanagement 2021).

NPV of project X

Year	Project X	Discounting factor	Net cash flow
0	-110000
1	45000	0.892857143	40178.57143
2	45000	0.797193878	35873.72449
3	30000	0.711780248	21353.40743
4	30000	0.635518078	19065.54235
5	20000	0.567426856	11348.53711
			127819.7828

NPV = $127819-$110000= $17819

NPV of project Y

Year	Project Y	Discounting factor	Net cash flow
0	-200000
1	50000	0.892857143	44642.85714
2	50000	0.797193878	39859.69388
3	50000	0.711780248	35589.01239
4	100000	0.635518078	63551.80784
5	55000	0.567426856	31208.47706
			214851.8483

NPV of project Y = $214851- $200000= $14851

Decision: Project X is a better option to invest as it has higher NPV than other.

3. ROCE

Return on capital employed states that the rate at which the investment has been made is how much more than the rate earned from the investment

ROCE of Project X

Year	Project X
0	-110000
1	45000
2	45000
3	30000
4	30000
5	20000
Average cash flow	34000
ROCE	30.90909091

ROCE of project Y

Year	Project Y
0	-200000
1	50000
2	50000
3	50000
4	100000
5	55000
Average cash flow	61000
ROCE	30.5

Decision: Discounting factor of the project is 12% and the ROCE of project X is 30.9% and project Y is 30.5%. Therefore, better project is project X (Bragg 2020).

2. Problems and solutions to Net present method

• Discounting rate selection

Net present value has a major disadvantage of selecting a discounting rate this is because the rate keeps on changing and as the situations or environment is very dynamic then it is important to consider various factors like inflation rate, growth rate and so on. This can be improved by considering cost of capital and also calculate modified internal rate of return so that the discounting rate will be apt (Silica & Hall 2019).

• Determining cash flows

In the concept of net present value, it is difficult to estimate the cash flows for the future time period as it can be fluctuated and results can be reliable. For removing this issue, the company should consider various factors like change in economic situations, new equipments for improving the condition of the company’s investment situation.

• Project of different size cannot be compared

The major limitation of NPV is that the projects of different sizes cannot be compared and a decision regarding it cannot be taken. This can be removed by calculating the Average period for both the project so that projects of different sizes can be compared with each other (Efinancemanagement 2021).

Question 2

Ratio analysis of Bell electronics

1. Return on capital employed

Return on capital employed refers to that ratio which helps in understanding what the company is earning back from each dollar invested in the business. It is better to have a high return on capital employed as it will show high performance of the company.

In 2018, ROCE is 0.38 but in 2019 it decreases to 0.24. This shows that the company’s percentage increase in earnings before tax and interest is less than the percentage increase in capital employed. On a whole, the situation of company regarding return on capital employed is decent but can be better (O'Farrell 2017).

2. Operating profit

Operating profit ratio show the profitability of the company in terms of operating profit earned. It is a percentage of Operating profit to sales. If operating expenses are low and operating incomes are high then the company is performing well

In 2018, operating profit ratio was 19.7% and in 2019 it was 13.7%.this shows that operating ratio decreases this means that operating expenses will increase and this not satisfactory for the company. Performance has been decline in 2018 as compared to 2019 (Bragg 2020).

3. Gross profit ratio

Gross profit ratio refers to that proportion of profit earned in terms of the factory expenses and net revenue. This ratio is the main parameter for measuring the company’s performance. It is percentage of gross profit to sales.

In 2018, gross profit ratio was 40% but in 2019 it decreases to 36% which shows that the profitability of the company is decreases. This is due to increase in factory expenses and decrease in sales percentage as compared to expenses (O'Farrell 2017).

4. Current ratio

Current ratio is a part of liquidity ratio. This ratio checks the liquidity position of the company. For an ideal company current ratio should always be 2:1, which is, current ratio should be twice as compared to current liabilities. This ratio signifies that how efficient the company is to pay its current liabilities by selling its current assets.

In 2018, current ratio was 1.09:1 and in 2019 it was 1.3:1, ratio in both the years is quite stable and decent but 2018 has better liquidity as compared to 2019 (Hashanah & Sucipto 2019).

5. Quick ratio

Quick ratio is another part of liquidity ratio. In this the company’s capability to use quick assets to pay its current liabilities is checked. It is advisable to have more of quick assets than current liabilities so that they can be selling at any time and current liabilities can be paid.

In 2018, quick ratio was 0.47 and in 2019 it increases to 0.53. This shows that in 2019 they have a better liquidity to pay its current liabilities by using assets which can be converted into cash at any point of time (Bragg 2020).

6. Settlement period for trade payables

Creditor payment period refers to the time period in which the company pay backs to its creditors for credit purchase. It is preferable for the company to have a long payment period so as to pay conveniently.

In 2018, the company had to pay in 28 days and in 2019 the company was paying back in just 8 days. This can be good or bad. Good, as the company’s capability of paying will be increased and bad as the company will have short duration to arrange the funds to pay (Hashanah & Sucipto 2019)..

7. Settlement period for trade receivables

Debtor collection period refers to the time in which the company will collect money from its debtors. It is better to have a short collection period so that, that money can be utilized for other business activities.

In 2018 the company have a collection period of 26 days from debtors but in 2019 it increases to 40 days which means that Bell electronics have to wait more for the payments from debtors

8. Inventory turnover ratio

Inventory turnover ratio refers to the time in days in which the whole inventory will be converted in to cash. This ratio helps in managing the flow of inventory in Bell electronics so that the issue of under stocking and overstocking can be removed.

In 2018, Bell electronics can have an inventory of 5 times as compared to the total cost of goods sold. But in 2019, it decreases to 4.77. This means that in 2018 they have a better turnover ratio of converting inventory into cost of goods sold (Tissen & Sneideren 2019).

Recommendations

From the discussion above it can be seen that Bell electronics was performing better in 2018 as compared to 2019. They can improve their liquidity by increase the amount of investment in current assets so that they can easily pay back the current liabilities or they can take liabilities which is capable of repaying. While talking about settlement period, the company should make proper guidelines and policies for both paying and collection period so that effective planning can be done. In terms of profitability also, 2018 performance was better than 2019, therefore the company can increase the amount of income by various means or the main step can be reduction in both factory and operating expenses which are at rise in the annual figures.

Part B

Project Management Perspective based on project life cycle

The project life cycle helps in provides the stages that how the project will initiate towards the work performance and increase their ability to gain the best possible outcomes. The project life cycle includes four phases that are Initiation, Planning, Implementation, and Closure. It helps in provides the path to the project and build new efforts to concrete with the changing process with identification of the efficient method. Kevin Lewis needs to understand the project life cycle stages and implement them in Concrete Masonry Corporation which derives new actions.

Stages of Project Life Cycle

Figure 1Stages of Project Life Cycle

Source: By Me, 2021

Initiation- at the first instance, they will need to initiate to take out the plan which needs to consider the effective measures that are required to present new outcomes in the project. Kevin Lewis will need to prevent the change processes that are enlightened to discover the policies and management throughout the major outcomes. The experience of engineering in design industries will increase their demand in the industry and prevent the highlights to become more outcomes. The initiation stage will provide the best factors that are included in the project and make new outcomes (Ginzburg, Shilov and Shilova, 2019).

Project Planning- In this stage, they need to plan that how to work with new advanced factors. Kevin Lewis and the team lead to analyze the main factor that how to concrete with several changes and required to obtain the project objectives. The project statement will provide the effective failures and data process for planning the project. The planning includes the tools, techniques, and working segregation that how they will perform, and measures they will calculate. The project will justify thought out the factor and implement new changes while prescribed actions plan at the working pattern.

Implementation- project planning needs to be implemented in the project. The thirds stage will align to implement the techniques that can provide efficiency and effectiveness in data process and functional outcomes. It leads to develop and qualify the change processes that are required to manage the outcomes identically. It will lead to enhance to manage with the new action plan in the project. The organization needs to attain their objectives with new planning that how they will retain effectiveness in the project and make their best outcomes. It will perceive to describe the changes with the enhancement of working areas.

Closure- It is the last stage in the project life cycle. The closure means the project is completed and delivers outcomes that are perceived to change identically. It ensures the effective process and data that are taken to reconcile the changed project and managed out to clear the system with developing the change process. The closure will define the offshore data project that described project priorities and description towards the major goals (Liu et al., 2015). This will entitle to change the process that can lead to complete the project with the best measurements and enhancement in planning with working outcomes.

1. Project Scope Statement

Project Name: Concrete Masonry Corporation in Road Infrastructure
Project Manager: Kevin Lewis		Date: 12/02/2021
Project Justification	The Road infrastructure will take out as a new prescription in the goal that can lead to develop and provide the major aspects of work condition. This project helps in consider the best engineer job that will select the site to determine the change process and perceived action plan.
Project Scope Description	The project scope description is to provide the best factors that can lead to developing new roads and building sites for infrastructure. Project management and the team will provide the database to develop new outcomes and concrete with a new action plan. It helps in sustain the factors with the alignment of new opportunities and take new insights (Abdilahi, Fakunle and Fashina, 2020).
Project Objectives	The project objectives are- To get the stable marketplace and predictable issues in the business environments position. The competent workers needs to be placed there ideas with determined options and action plan that can lead to provide new sustainability. To get the project completed in the project fund that are qualifies to make the changes and attain measurable goals.
High level requirements	The high-level requirements are to manage the project within the budget. It seems to define new perspectives and change processes that are enlightened to deliver the new process and engaged with the effective enhancement of work. It also the fulfilment in working position by the project manager and complete the project on time is a major task.
In Scope	The In-scope data will prevent the change process that provides objectives in need to change with a prescribed action plan. It is entitled to develop an effective process that could enlighten the ranges and services of auctioned plans. The scope will prevent the changed to acknowledge the definite management of work and outsource the data process.
Out Scope	The out scope includes the new project task and miscellaneous activities that can take aside to deliver the project deliveries and data with prescribed actions. It also develops the process and their activities that are embraced with new system and position in the design industries that will produce change (Akhwaba, Bowa and Keiyoro, 2020).
Project Deliverables	The project deliveries will entitle to change the aspects of the infrastructure that aim to deliver the project in time and define the best perspective to enhance the change measure with definite outcomes. It will ensure the process and efficiency in deliverable data in the process of the change.

Project Priorities

The trade-off in the project will tend to define the problems and measure the cost and time with effective actions. It is entitled to define the change that can lead to outline the project cost and time with an effective action plan. It managed with the projects that are entitled to showcase the activities and foster the characteristics in the project deliveries. The project trade-off involves a sacrifice to gain the desired results and objective of the project. In the Concrete Masonry Corporation, Kevin Lewis makes the project decision that takes new sources with the involvement of the team. They lead to entitle the positional and gain the perceived outcome to the regime the changes and pertain with actions.

It includes project investment, time, competent workers, and delivery of work that leads to enhance the change and described the effective manner of work conditions. It embraces the situational factors with the data process to engaged the systematic process and develop more outcomes. The changes and competent work will derive towards the actions that gain the process and with effective pattern of work (Lindson et al., 2017). Kevin Lewis will describe the change process that can engage with the situational plan and gain the outcome to deliver the project scope at the determined time. It describe the new position that are embrace to take new actions and planning with the trade-off project and their project priorities to build enhancement and change process in the working position.

2. Work Breakdown Structure

Figure 2: Work Breakdown Structure

Source: By Me, 2021

3. Network diagram

Network diagram is a visual presentation of the whole project dividend in various tasks and duration in a sequential and systematic form. This method helps in knowing the dependency of one activity on other. In this representation task name is written in the boxes and with the duration of that particular task so that total duration can be estimated and critical path method can be identified.

Advantages

• This tool helps in planning the project in detail and in a understandable form

• Helps in tracking of activities while the project is in process

• Helps in indentifying risk and finding the solution for the same

• Network diagram will help in estimating the deadlines of the project and allocating resources accordingly.

Disadvantages

• This concept is very time consuming

• As it includes the involvement of expertise therefore it will incur a good amount of cost.

• Sometimes project detailing is so complicated that it becomes difficult to picture every step on this network diagram

• Network diagram is not a necessity for the project management as many substitutes like Gantt chart explains the same concept and it is easy that Network diagram.

Activity	Duration
2.1	10
3.1	20
3.2	60
2.2	20
3.3	20
3.4	20
2.3	15
3.5	15
Total Duration	180 days

4. Cost Appraisal Method

Cost appraisal is a technique of checking or examining the quality of the product which is in progress, before delivering it to the customer. Hence, appraised cost is an expense or a fee that the company pays to detect the defects in product and to know at which stage of product cycle the company is (E-Efinancemanagement 2021)

There are three approaches of Appraised cost or inspection cost

1. Pre-production inspection cost

In this stage of quality check, the company checks the raw material before entering it into actual production. This is checked by estimating the material weight, stability, zippers, closures, and other requirements which vary from product to product. This is the important part of quality inspection as it will identify any detects or errors that can be faced in the raw material of the product at a prior stage and then the long term issues can be mitigated. In the case explained above, pre production inspection will related to checking of all the machines that will be imported to Eastern Europe and the packaging and the lodging of the port that has been selected for transporting so that the project can be successfully implemented.

2. In line inspection cost

In line inspection is the quality check at various stage of a project. In every industry, in line inspection plays a significant role as major issues or challenges come in between the project. Therefore in the case above, in line inspection will be in the field of when the machine will be exported from here and will be in shipment for importing in Poland. There is several documentation in this process and also there is a fear of machine damage which will be a great loss to the company and therefore time to time inspection at every halt become necessary and this will include a good amount of fees.

3. Final inspection cost

Final inspection is the end stage where the auditor will get the last opportunities to address any faults before ending the project, as after that nothing can be changed. In this case the final inspection will be done at the Poland port as the machines are delivered with no damage so as to complete the project with ease and success. This stage will also incur a good amount of cost which will increase the cost of the project and therefore has to efficiencies about the whole inspection process (E-Efinancemanagement 2021).

Time phased budget

Time phased budget is the planning framework which helps in allocating the cost to different project activities with the timeline of each activity. This helps in extending the capacity to refine exactly when and in how much time the task will completed and how well the project is flowing as per the anticipated budget.

Conclusion

From the report prepared it can be concluded that on the basis of the investment appraisal technique like NPV, Payback and ROCE project X is better as in terms of recovery, profitability. Therefore the company should invest in project X. while considering the figures of Bell electronics for the year 2018-2019, it can be said that they were performing well in 2018 as compared to 2019 and they should think of increasing their liquidity and efficiency to gain better results. In the end part of the report, for inspecting the project various appraised cost increases the budget for the project was explained. Apart from it, concept like project life cycle, work breakdown structure and network diagram played a critical role in project management of Concrete Masonry Corporation, which was importing eight machined to Poland.

References

• Abdilahi, S.M., Fakunle, F.F. and Fashina, A.A., 2020. Exploring the extent to which project scope management processes influence the implementation of telecommunication projects. PM World Journal, IX, pp.1-17.

• Akhwaba, J.K., Bowa, O. and Keiyoro, P., 2020. PROJECT SCOPE AND EXECUTION OF FIBRE OPTIC INFRASTRUCTURE. International Journal of Construction Project Management, 12(1), pp.3-16.

• Bragg, S, (2020). Return on investment definition- Accounting Tools. [Online]. Available from: https://www.accountingtools.com/articles/return-on-investment.html. [Accessed: 12 February 2021].

• Bragg, S., (2020). Ratio analysis- Accounting Tools. [Online]. Available from: https://www.accountingtools.com/articles/ratio-analysis.html. [Accessed: 12 February 2021].

• E-Efinancemanagement, (20210. Appraisal Cost: Simplified Like Never Before- E-finance management. [Online]. Available from: https://efinancemanagement.com/costing-terms/appraisal-cost. [Accessed: 12 February 2021].

• Efinancemanagement, (2021). Advantages and Disadvantages of Net Present Value (NPV) - E-finance management. [online] Available from: https://efinancemanagement.com/investment-decisions/advantages-and-disadvantages-of-npv. [Accessed: 12 February 2021].

• Ginzburg, A., Shilov, L. and Shilova, L., 2019, December. The methodology of storing the information model of building structures at various stages of the life cycle. In Journal of Physics: Conference Series (Vol. 1425, No. 1, p. 012156). IOP Publishing.

• Hashanah, N. & Sucipto, A. (2019). Liquidity Ratio, Profitability, and Solvency on Stock Returns with Capital Structure as an Intervening Variable (Study on Food and Beverage Sub Sector Listed In Indonesia Stock Exchange (Idx) Period 2013-2017). Ekspektra: Journal Business and Management, 3(1), pp.52-68.

• Jeanty, J. (2017). Strength & Weaknesses of Payback Approach in Capital Budgeting. [online] Bizfluent. Available at: <https://bizfluent.com/info-10071038-strength-weaknesses-payback-approach-capital-budgeting.html> [Accessed: 12 February 2021].

• Lindson, N., Richards?Doran, D., Heath, L., Hartmann?Boyce, J. and CTAG Taps Team, 2017. Setting research priorities in tobacco control: a stakeholder engagement project. Addiction, 112(12), pp.2257-2271.

• Liu, J., Love, P.E., Smith, J., Regan, M. and Davis, P.R., 2015. Life cycle critical success factors for public-private partnership infrastructure projects. Journal of Management in Engineering, 31(5), p.04014073.

• O'Farrell, R. (2017). Company Ratio Analysis- Bizfluent [online]. Available from: https://bizfluent.com/about-5367437-company-ratio-analysis.html. [Accessed 12 February 2021].

• Silica, S. & Hall, J.H. (2019). The evolution of the application of capital budgeting techniques in enterprises. Global Finance Journal, p.100504.

• Tissen, M. & Sneidere, R. (2019). Turnover Ratios and Profitability Ratios Calculation Methods: The Book or Average Value. Scientific Programme Committee, p.851.