Financial management& control | Business & Finance homework help

  

Part A– GP ElectricalsPlc2

You are a financial analyst at GP Electricals Plc; a public limited company specialising in manufacturing and distributing electrical generators. The Board of Directors have looked into the financial statements of the company for the last two years and have raised concernsregarding both the company’s profitability and liquidity. The financial statements of GP Electricals for the last two years are given below:

Statement of Comprehensive Income for the year ended 31 December

   

2020

2019

  

£000

£000

£000

£000

 

Revenue

38,550

29,950

 

Less: Cost of sales:

 

Opening Inventory

3,875

4,535

 

Manufacturing costs

22,140

13,250

  

26,015

17,785

 

Less: Closing Inventory

(6,225)

(3,875)

   

(19,790)

(13,910)

 

Gross profit

18,760

16,040

 

Less: Expenses

 

Selling &   distribution expenses

8,135

4,380

 

Administrative   expenses

2,100

990

 

Bad debts written off

1,040

565

   

(11,275)

(5,935)

 

Operating profit 

7,485

10,105

 

Less: Interest payable

(1,690)

(380)

 

Profit before tax

5,795

9,725

 

Less: Income tax

(900)

(1,920)

 

Profit after tax

4,895

7,805

 

Less: Dividends paid

(2,100)

(2,100)

 

Retained profit for   the year

2,795

5,705

Statement of Financial Position as at 31 December

   

2020

2019

  

£000

£000

£000

£000

 

Non-current assets   (net)

 

Land and building

24,590

19,280

 

Equipment 

4,380

3,200

 

Motor vehicles

1,900

1,650

   

30,870

24,130

 

Current assets

 

Inventory

6,225

3,875

 

Trade Receivables

5,900

4,500

 

Cash

0

560

  

12,125

8,935

 

Current   liabilities

 

Trade Payables

(5,100)

(4,885)

 

Taxation

(1200)

(1,490)

 

Bank overdraft

(2,180)

0

 

Net current assets

3,645

2,560

   

34,515

26,690

 

Non-current   liabilities

 

Loan stock

(4,575)

(1,250)

   

29,940

25,440

 

Equity 

 

Ordinary shares of £1   each

26,035

24,330

 

Accumulated profit

3,905

1,110

   

29,940

25,440

Required:

1. Prepare a report for the Board of GP Electrical Plc. that evaluates the performance of GP Electrical in relation to profitability, liquidity, gearing, asset utilisation, and investor potential. Your report must be supported by the calculation of relevant ratios in the five evaluation areas mentioned above.  (25%)

2. Calculate the Working Capital Cycle in days for GP ElectricalPlc based on the information above, assuming 365 days, for the years 2020 and 2019AND briefly comment on the company’s liquidity position in 2020 compared to 2019. (round to the nearest day)  (5%)

3. Critically evaluate the limitations of using ratio analysis for both cross-sectional and time-series comparisons.   (10%)

All calculations should be clearly shown including all appropriate workings, and should be made to the nearest £000 or two decimal places where required.

Total for Part A: 40%

Part B – VenmacLtd

Vnemac Ltd is specialized in producing and selling ventilator machines. In 2019, the manufacturing cost per unit included:

  

£

 

Direct material

125

 

Direct labor (20 minutes per unit)

15/hour

 

Variable manufacturing overhead

20

 

Variable selling expenses

15

 

Variable administrative expenses

10

Fixed costs for the year ended 31 December 2019 were:

  

£000

 

Fixed manufacturing

1,650

 

Fixed selling and distribution

2,850

 

Fixed administrative

930

The company produced and sold 45,000 units at £300 per unit.

In 2020, management has decided to increase the selling price by 20% and to maintain the same contribution margin ratio as last year. This increase in price is to meet an increase of £1,450,000 in fixed costs in 2020. The company has produced and sold the same quantity in 2020 as last year.

Required:

1) Calculate the break-even point and margin of safety in both units and revenue for the two years, 2019 and 2020, and briefly analyse the results.   (10%)

2) Critically evaluate the key assumptions that underpin the break-even model, assessing and analysing whether the model can be applied within the context of today’s global business environment.   (15%)

All calculations should be clearly shown including all appropriate workings, and should be made to the nearest £000 or two decimal places where required.

Total for Part B: 25%

Part C

Required:

1. Financial managers can fund potential investments and expansion plans through accessing a range of differing sources of finance. Explain and critically evaluate a single source of bothinternal and external finance that could be used by companies to finance further investment programmes.  (15%)

2. “Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance”.

(Hall, Lovallo and Musters, 2012)

Required:

Critically evaluate the use of zero-based budgeting as a means of addressing the above problem in a challenging business environment. You are encouraged to use illustrative examples, to support your discussion. 

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