Unit 2 MFRD Assignment Brief

Unit 2 MFRD Assignment Brief

Unit 2 MFRD Assignment Brief

Assignment

TASK 1 to TASK 4: You are required to follow the instructions as specified towards each task and support with a research by using supportive materials like books, websites, etc., and give a feedback on the findings by relating your arguments to relevant case studies and examples from a business organisation as specified in MRFD Assignment task:

Task 1 and 2

The recession has left many people without jobs. Assuming that you have been laid off by your company and you have personal savings of £50,000. You have been contemplating what to do next and your friend has advised you to start your own business and be your own boss. You decide to carry out research on which business to engage in and how to raise the required finance. You are required to start a new business as a sole trader, or partnership or company with start-up capital of at least £100,000 - £1 million.Using supportive materials like books, websites, etc., and give a feedback of the findings on P1.1, P1.2, P1.3, P2.1, P2.2, P2.3 and P2.4.  Answers without application to a specific business or appropriate examples will be referred.

Task 1

LO1 Understand the sources of finance available to a business

P1.1 Identify the sources of finance available to the new business you have chosen
P1.2 Assess the implications of the different sources of finance to your chosen business
P1.3 Select appropriate sources of finance for a business project you have chosen e.g. opening new store, developing IT system, buy new machines etc.

Task 2

LO2 Understand the implications of finance as a resource within a business

Using the same business you have chosen above       
 P2.1 Analyse the costs of different sources of finance
P2.2 Explain the importance of financial planning to the business organisation you have chosen
P2.3 Assess the information needs of different decision makers in your chosen business
P2.4 Explain the impact of finance on the financial statements of your chosen business

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Task 3

Use thecase study given below andcarry out a research by using supportive materials like books, websites, etc., and give a feedback of the findings on P3.1, P3.2, and P3.3. Answers without application to the case study or appropriate examples will be referred.

LO3 Be able to make financial decisions based on financial information

P3.1 Analyse budgets and make appropriate decisions from the case study given below:
Easy electronics ltd has been trading for many producing IBM compatible motherboards or main boards which are sold to own equipment manufacturers, Easy personal and computer hardware sellers.  Budgeted Profit and Loss Account and Cash Budget for the six months period ending 31/December 2013 is given below:        

                                                                                                                                                                                                                                                                        Easy Electronics ltdBudgeted Profit and Loss Account for the six month period ending 31December 2013.

 

£'000

£'000

Sales

 

35,830

Less: Cost of sales

 

(18,878)

Gross profit

 

16,952

Profit from disposal of equipment

 

100

 

 

17,052

Less: Expenses

 

 

Administration cost (£2400 + £675)

3075

 

Distribution cost

3,481

(6,556)

Profit before interest and tax

 

10,496

Loan interest

 

(500)

Profit before tax

 

9,996

Less: Corporation tax @ 23%

 

(2,299)

Profit after tax

 

7,697

Easy Electronics ltd

Cash flow forecast for July to December 2013

 

Months

Receipts (in flows)

Jul

Aug

Sep

Oct

Nov

Dec

 

£'000

£'000

£'000

£'000

£'000

£'000

Receipts from cash sales

1,500

1,575

1,653

1,818

2,000

2,200

Receipts from Debtors

3,333

3500

3,675

3,859

4,245

4,669

Receipt from disposal of fixed asset

   

400

  

Total receipts (A)

4833

5075

5,328

6,077

6,245

6,869

Payments (out flows)

      

Payments to trade creditors

1,636

1,800

1,890

1,985

2,084

2,292

Salaries and wages

900

990

1,089

1,198

1,318

1,450

Variable overheads

800

880

968

1,084

1,214

1,360

Administrative cost (excludes monthly depreciation £100,000 for July - Sept and £125,000 for Oct - Dec )

400

400

400

400

400

400

Distribution cost

400

440

484

557

640

960

Capital expenditure

  

 

3,000

  

Dividends

     

1,000

Corporation tax

   

900

  

Interest and other finance charges

 

 

 

 

500

 

Total payments (B)

4136

4,510

4831

9124

6156

7462

       

Net cash flow (surplus or (deficit)) C = (A-B)

697

565

497

-3,047

89

-593

       

Opening cash balance (D)

1000

1697

2262

2,759

-288

-199

Closing cash balance (C+D)

1697

2262

2,759

-288

-199

-792

Additional information:

  1. 30% of the sales are to be paid for by cash each month
  2. Settlement for credit purchase is 30 days
  3. The company offers a 30 days credit period
  4. State any other assumptions made.

P3.2 Explain the calculation of unit costs and make pricing decisions using relevant information given below:

You are required to use the budgeted profit and loss account to explain how unit costs are calculated. It is estimated that Easy Electronics ltd will manufacture and sell 650,036 mother boards for the six months period ending 31st December 2013.  The finance director of Easy Electronics ltd has asked you to evaluate a proposal to reduce the selling price by 10% from the current price of £55.12 per unit and as results sales are expected to increase by 20%. Cost of sales will also increase by 20%. All other costs will remain constant. You are required to make pricing decision based on the above information.

P3.3 Assess the viability of a project using at least two investment appraisal techniques using the case study provided below:

Easy Electronics ltd is considering diversifying into manufacturing Aluminium computer cases or housing from October 2014.  The company’s cost of capital is 10%. The net cash flows from the project are given below.

 

Year

Project A: Aluminium Housing

£’000

0

(8,000)

1

2,000

2

2,800

3

3,200

4

1,200

5

800

6

500

The project has a residual or scrap value of £400,000.

Year

Discount factor @10%

Discount factor @15%

0

1

1

1

0.909

0.870

2

0.826

0.756

3

0.751

0.658

4

0.683

0.572

5

0.621

0.497

6

0.564

0.432

LO4 Be able to evaluate the financial performance of a business

For task P4.1 and P4.2 you are required to carry out a research by using supportive materials like books, websites, etc., to discuss the main financial statements (profit and loss, balance sheet and cash flow statement and compare appropriate formats of financial statements for different types of business (such as formats of financial statements for sole trader, partnership and limited company), and give a feedback of the findings on P4.1 and P4.2.  Answers without application to main financial statements or formats of financial statements for different types of business and appropriate examples will be referred.

P4.1 Discuss the main financial statements (the discussion should focus on basic form and purpose of main financial statements)
P4.2 Compare appropriate formats of financial statements for different types of business
P4.3 Interpret financial statements using appropriate ratios and comparisons, both internal and external using the data given below.
For task P4.3 you are required to carry out a research by using supportive materials like books, websites, annual reports, etc., to interpret financial statements of WM Morrison Supermarkets PLC using appropriate ratios given below and to compare its financial performance with that of J Sainsbury PLC for year 2011 and 2010.  Answers without application to the case study given will be referred.

 Particulars

WM Morrison Supermarkets PLC

J Sainsbury PLC

 

2011

2010

2011

2010

Turnover (£mil)

17,663

16,479

22,294

21,102

Profit (Loss) before Taxation

947

874

799

827

Return on Shareholders Funds %

17.55

16.13

14.19

15.25

Gross margin %

6.89

6.97

5.43

5.50

EBIT margin %

5.51

5.49

3.92

4.03

Profit Margin %

5.36

5.30

3.58

3.92

Berry ratio

3.95

3.79

3.09

3.04

Return on Capital Employed %

12.53

12.44

8.68

9.78

Return on Total Assets %

9.61

9.59

6.47

7.26

Net Assets Turnover (x)

2.34

2.35

2.42

2.50

Current ratio (x)

0.57

0.55

0.65

0.58

Liquidity Ratio (x)

0.24

0.24

0.35

0.31

Stock Turnover (x)

23.27

25.83

23.77

25.99

Debtor Collection Days

3.95

4.36

1.80

1.61

Creditors Payment Days

29.12

31.01

31.16

31.76

Gearing %

42.02

29.61

66.18

57.28

Interest Cover (x)

6.09

21.33

6.79

8.13

Earnings per share (£)

0.27

0.24

0.32

0.34

Dividends per share( £)

0.12

0.08

0.15

0.14

Market capitalisation (£mil)

7,236

7,083

5,846

6,257

Total Assets (£mil)

9,859

9,111

12,340

11,399

Working Capital

-981

-948

-1,104

-1,221

Shareholders Funds (£mil)

5,397

5,420

5,629

5,424