BUS4012 – Introduction to Business Finance

Section B: Case Study type questions.

Question 1

1.i. Financial Ratio Calculations

Ratio	Formula	Workings (20x2)	Workings (20x1)
Gross Profit Margin	(Gross Profit / Net Sales) * 100%
	Gross Profit	180000	150000
	Net Sales	440000	350000
		40.91%	42.86%
Net Profit Margin	(Net Profit / Net Sales) * 100%
	Net Profit	101000	60000
	Net Sales	440000	350000
		22.95%	17.14%
Current Ratio	Current Assets / Current Liabilities
	Current Assets	215000	210000
	Current Liabilities	78000	80000
		2.76	2.625
Quick Ratio	(Current Assets - Inventory) / Current Liabilities
	Quick Assets (Current Assets - Inventory)	180000	180000
	Current Liabilities	78000	80000
		2.31	2.25
Receivable Days	(Trade Receivables / Net Sales) * 365
	Trade Receviables	80000	60000
	Net Sales	440000	350000
		66.364	62.571
Payable Days	(Trade Payables / Cost of Sales) * 365
	Trade Payables	58000	65000
	Cost of Sales	260000	200000
		81.423	118.625
Inventory Days	(Inventory / Cost of Sales) * 365
	Inventory	35000	30000
	Cost of Sales	260000	200000
		49.13	54.75

 

The deadline is getting closer, and there’s still plenty left to finish. If your BUS4012 Introduction to Business Finance assignment is incomplete, Locus Assignments offers urgent assignment help for Arden University students who need additional academic support. Contact us for more information on our services?
 

1.ii. Financial Performance Analysis

Profitability Analysis

However, Gross Profit Margin dropped a bit from 42.86% in 20x1 to 40.91% in 20x2. This reduction suggests that the rise in absolute terms of gross profit went together with a more rapid rise of the cost of sales than that of net sales. However, Net Profit Margin increased by more than 5% (from 17.14% to 22.95%), indicating that the firm can keep operational efficiency and cost control even after considering more overwhelming production costs. This might have been owing to a decline in marketing and distribution expenses in 20x2.
 

As stated in (Nissim, 2022), gross profit margin reveals the firm's capability of controlling production costs and net profit margin shows the overall profitability of the business after taking into consideration operating and financing expenses. There is therefore an advantage of a slight erosion of production efficiency, but the organization has gone on to effectively control overheads and interest cost related expenditure so as to improve its bottom line.
 

Liquidity Position

The Current Ratio moved from 2.63 to 2.76, and the Quick Ratio from 2.25 to 2.31, both signs of excellent short term liquidity position. It also means that Reliance Ltd has more than enough margin to fund its present liability with easily found assets. The respective ratios are exceeded by the commonly accepted healhy benchmark of 2:1 and 1:1 ratio in financial analysis ((Team, 2023).
 

In this case, however, it can also be an indication of excessive liquidity, which implies underutilised resources. The high ratio may indicate inefficiencies like idle cash balances or slow turnover of receivables as reflected in the receivable days below.
 

Efficiency / Working Capital Management

Receivable Days increased from 62.57 days to 66.36 days from 2010 to 2011 and demonstrate that customers’ collection period is slower. Such practices might also concern credit of control and cash flow restrictions. This also implies Inventory Days dropped from 54.75 to 49.13, indicating inventory turnover has increased, a positive and potentially reducing holding costs situation.
 

Payable Days was the metric that dropped the most as now it is now 118.63 days as opposed to 81.42 days. Shorter payable periods will of course help improve supplier relationships; however, they also increase pressure on cash flow if receivables are not being collected in time.
 

Reliance Ltd from the working capital perspective is better in self-financing its operation by internal assets (higher receivable and lower payable) that might put pressure on the liquidity when or if sales slow or costs suddenly rise (ACCA Global, 2025).
 

Recommendations

1. Credit control should be tightened: Setting up stiffer credit terms, tighten up around its collection, in order to reduce receivable days and improve cash flow.

2. Negoiate supplier terms: If possible, promote longer supplier trade payable terms without harming supplier relations, to bring cash inflows and outflows closer together.

3. The observation of a downward trend of gross profit margin although sales continue to increase signals rising input costs that the company needs to manage strategically with their suppliers or improve operational efficiency.
 

1.iii. Budget vs Actual Variance Analysis

For the purposes of the project, a comprehensive operating statement is prepared for period 20x2 in order to assess Reliance Ltd’s performance against the static budget, flexed budget and actual results. The original budget has to be adjusted to reflect actual output (12,000 units) for the sake of meaningful variance analysis.

Operating Profit Budget	Static Buget (13000 u)	Flexed Budget (12000 u)	Actual	Variance (Act – Flex)	F/A
Units	270	270
Expected Sales Volume	13000	12000
Revenue	3510000	3240000	3520000	-280000	F
Cost of Sales	160	160
Less Variable Cost	2080000	1920000	2020000	-100000	A
Contribution	1430000	1320000	1500000	-180000	F
Less Fixed Costs	600000	600000	610000	-10000	A
Operating Profit (PBIT)	830000	720000	890000	-170000	F

 

Interpretation and Key Findings

• The favourable variance in revenue of £280,000 positively reflects on a higher realised selling price per unit compared to the planned amount (£293.33 actual vs £270 planned), perhaps because of an increased market demand or astute pricing strategies.

• The Cost of Sales variance is adverse in the amount of £100,000, indicating changes to production or procurement costs. Although fewer units were produced (12,000:13,000 static), per unit variable cost increased to £168.33 which is more than the budgeted £160.

• There is a favourable variance in Contribution Margin of £180,000, largely driven by the revenue uplift for Contribution Margin exceeds expectations.

• The Fixed Costs overran by £10,000 giving a minor adverse variance, which may be by items such as unplanned administrative and operational costs that were incurred.

• An overall favourable variance of Operating Profit of £170,000 demonstrates an excellent response of pricing power and sales performance to overcome the cost overruns.
   

In other words, Reliance Ltd recorded higher revenue per unit almost all the adverse cost movements. Preserve profitability margins - Therefore, the recommendation is to continuously monitor the variable costs.
 

Still struggling with financial calculations and conclusions? There’s no need to be stuck on your BUS4012 Introduction to Business Finance module assignment. Get instant Arden University assignment help at Locus Assignments— AI-free, plagiarism-free, and double checked by financial educators! Order expert help now!
 

Question 2

2.1

ARR
Year	Printer Machine 1 (£)	Cumulative Cash flow	Printer Machine 2 (£)	Cumulative Cash flow
0	-150000	-150000	-100000	-100000
1	40000	-110000	30000	-70000
2	55000	-55000	35000	-35000
3	30000	-25000	20000	-15000
4	35000	10000	15000	0
5	20000	30000	35000	35000
Scrap Value	10000	40000	15000	50000
Dep.	28000		17000
Average Annual Profit		8000		10000
ARR	10.00%		17.39%
Payback Period	3.714285714		4

 

NPV
Year	Printer Machine 1 (£)	Discount Rate	PV	Printer Machine 2 (£)	Discount Factor	PV
0	-150000	1	-150000	-100000	1	-100000
1	40000	0.9091	36363.63636	30000	0.909091	27272.73
2	55000	0.8264	45454.54545	35000	0.826446	28925.62
3	30000	0.7513	22539.44403	20000	0.751315	15026.3
4	35000	0.6830	23905.47094	15000	0.683013	10245.2
5	20000	0.6209	12418.42646	35000	0.620921	21732.25
Scrap Value	10000	0.6209	6209.213231	15000	0.620921	9313.82
NPV	Sum of Present Value
	-3109.264			12515.911

 

2.ii. Evaluation and Recommendation

Printer Machine 2 is the financially and strategically superior option for Printing Press Ltd. based on the investment appraisal techniques applied.
 

From a financial performance it is clear that, whilst Machine 1 has a negative NPV of £3,109.26, Machine 2 has a positive NPV of £12,515.91. Thus, Machine 2 has higher long term value creation since it has a higher NPV which directly measures how much an investment adds to the firm, considering the time value of money. Brealey, Myers, and Allen (2020) state that NPV is the most useful investment appraisal tool because it reflects the scale and timing of the cash flow inclusion (Chathams, 2022) And from the point of view of Average Rate of Return (ARR), Machine 2 shows a result of 17.39% higher than Machine 1 (10.00%). Even though ARR doesn’t take into account the time value of money, it gives a view of accounting return on investment for Machine 2 that supports its attractiveness.
 

While Machine 1 does deliver a somewhat faster payback period (3.71 years vs. 4.00 years), that is not enough for Machine 1 to compensate for lower profitability and a negative NPV. Payback is strictly measured with regard to liquidity and risk minimization but discounted post payback cash flows and the total value are ignored.
 

From a strategic point of view, investment in Machine 2 allows a lower initial investment (i.e. £100,000 vs. £150,000) that is in accordance with the constraints in terms of capital and cash flow in the short term. In addition, it reduces payment of investments on the risk on the investment due to the fact that in place returns are assured along with a shorter recovery of the capital outlay.
 

Finally, as a result of financial indicators and strategic criteria analysis, Machine 2 is advised to be the most suitable investment. It add to shareholder wealth, meets capital budgeting conventions and is consonant with sensible funding decision making concepts (Schmidt, 2025).

Overhead Rate per Direct Labour Hour
Indirect Labour	10000
Heating / Lighting / Power	5000
Indirect Materials	5000
	20000

 

Direct Costs per Mounting service
Cost Type	Calculation	Amount (£)
Direct Materials	20 sqm × £2 per sqm	40
Direct Labour	12 DLH × (£120,000 ÷ 10,000) = £12/hour	144
Overheads (Absorbed)	12 DLH × £2.00 per DLH	24
Total Absorption Cost	208

 

The standard on the full absorption cost of one mounting service is £208.00, that is, all direct inputs and a fair allocation of indirect costs onto the DLH basis to guarantee that pricing and profitability decisions are made fully costed and in line with absorption costing rules.
 

Completing a finance assignment can feel like — PHEW! But, oops! There’s still some formatting, proofreading, referencing left. We can help you with that. With expert Arden assignment help, you can get well-formatted and accurately referenced BUS4012 Introduction to Business Finance assignments. Get started right away!