Unit 2 Managing Financial Resources Assignment Brief

Purpose of this assignment

The purpose of this assignment is to give the learners a broad understanding of the sources and availability of managing financial for a business organisation. Learners will learn how to evaluate these different sources and compare how they are used. They will learn how financial information is recorded and how to use this information to make decisions for example in planning and budgeting.
Decisions relating to pricing and investment appraisal are also considered within the unit. Finally, learners will learn and apply techniques used to evaluate financial performance                         

Scenario (Task 1)

Since embarking upon your Business you have been looking for a new job in finance or accountancy. You have had a number of years of experience working in industry and you would be particularly interested in a role which involved working with and advising local businesses. Eventually you secure a post with a large firm of accountants as a Finance and Business Advisor. This is a new departure for the company who have, traditionally, concentrated upon accountancy and auditing services.

Task 1A

As a starting point, the senior partner in the company suggests that you put together:

• A detailed information pack for new and existing businesses which:
• Identifies the sources of finance currently available. The pack should be aimed at the full range of business types – new and old, large and small – and for new business start-ups and those wishing to expand.
• Assesses the implications of each source including the relative advantages and disadvantages to the business, the legal aspects, the costs and the suitability for purpose.
• Provides three case-study examples for businesses. These should include a small business start-up, a large business expansion and small group of people who are looking to buy up an existing medium-sized company. Finance sources should be carefully matched to needs.
  (This provides evidence for outcome 1 – assessment criteria 1.1, 1.2 , 1.3 and for outcome 2 – assessment criteria 2.1)

Task 1 B

You are given the following information from the company’s financial statement.

• The above information contains information from both the Income Statement of the company and the statement of the financial position. Discuss the purpose of these financial statements.
• Analysis of the above information reveals that the company is financed by both debt capital and equity capital. You have been asked by the directors to prepare a short report on the costs of these different sources of finance. You are expected to discuss what factors should be considered by directors when taking decisions regarding the mode of financing.
• Selecting suitable sources of finance as 1.1 is an example of financial planning. Discuss other instances of financial planning and analyse the importance of financial planning to the company.
• The above information contains extracts from both the Income Statement and Statement of Financial position. Discuss how these statements meet the information needs of various stakeholders of the company.
• Discuss how different forms of financing affects the format of the financial statements.

Calculate the following ratios and comment on the performance of the business over the two years;

Gross profit margin
Stock Turnover
Debtors Collection period ( Debtors Days)
Creditors payment period ( creditors days
(This provides evidence for outcome 2 – assessment criteria 2.1, 2.2 , 2.3 and 2.4 for outcome 4 – assessment criteria 4.1,4.2 and 4.3)

Scenario (Task 2)

The Financial Accountant of Northfield Components has recently resigned and left his post with immediate effect. The Directors decide to advertise for a replacement but realize that the recruitment process may take up to three months. In the short term they decide to bring in a financial consultant to tide them over until a permanent appointment is made. You are asked by your line manager to take on this role – initially for three months

Task 2A

On your first morning in early January 2008 the Directors present you with the cash budgets prepared by the departed financial accountant. You are given the budgetfor the twelve months from January 2008. The directors are concerned about the likely cash deficits shown in the cash budget.

• Using the information given in the cash budget identify the main problems that Northfield Components are faced with.
• Identify the likely causes of the problems and how they might be remedied and avoided in the future.
• Make recommendations for improving the cash budget with a view to minimizing the cash deficit or, possibly, generating a cash surplus.

You are required to present your findings and recommendations in a formal written report to the Directors of Northfield Components Ltd.(This provides evidence for outcome 3 – assessment criteria 3.1)

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Task 2B

The Directors of North Seaton Engineering Company are considering two alternative business projects each of which involve an initial investment of ? 450,000. In your role as financial consultant you are asked to advise the Directors which of the two projects would be the more financially viable.
Project ‘A’ involves the introduction of modern, hi-tech machinery into the company’s main production unit. This will result in significant increases in output and substantial savings in production and maintenance costs. This in turn will result in a net increase in turnover to the company of:
Year 1 - ? 180,000
Year 2 - ? 230,000
Year 3 - ? 280,000
Year 4 - ? 120,000
Project ‘B’ involves an increase in the company’s marketing activities. The Directors would employ one of the region’s most prestigious marketing companies to manage a massive national campaign. They feel that business could be increased without, necessarily, updating production processes. In is anticipated that the net effect of their campaign would bring in additional annual turnovers of:
Year 1 - ? 60,000
Year 2 - ? 120,000
Year 3 - ? 250,000
Year 4 - ? 250,000
As financial consultant, you are asked to carry out a full investment appraisal of the two projects. In order to fully assess the pros and cons of the two alternatives you decide to employ a number of appraisal techniques:
Net present value.
For calculation purposes, you assume that the cost of capital will remain fairly static at around 6% per annum over the four year period.
Your appraisal should be presented in the form of a written report to the Directors and include all financial computations and a summary of the conclusions which can be drawn from the results of the appraisal – including recommendations as to which project should be taken on board.