Task One Guidance Format and StructurePresent your report in an.docx
- 1. Task One Guidance: Format and Structure Present your report in an appropriate format. For example: Subject: Date: Introduction Please include a short paragraph that introduces: - The objective of the task. - Some background context (i.e. who is your company and what do they do?) Sub-heading (For example: ‘Efficiency’ or ‘Liquidity’) Break up your report into smaller sections that have appropriate sub-headings. This helps to organise your report and to signpost the reader to significant matters. For each sub-section organise your narrative so that it is clear, concise and meets the specific criteria of the marking guide. The following structure is recommended: 1. Introduce the area of analysis and why it is important in understanding the company’s financial position and performance: i.e. if you are analysing some aspect of liquidity explain to the reader what this is and why understanding a company’s liquidity is part of financial analysis. 2. Identify the key trend you wish to discuss, i.e. what is the ratio you are discussing and how does it compare to the previous year. 3. Where relevant, suggest plausible reasons why this trend has occurred, i.e. was it the result of a business decision made by your group. 4. Where appropriate, provide some sort of appropriate benchmark for discussing the ratio, e.g. is the ratio particularly good or bad when compared to a target ratio or to competitors. 5. Explain the actual or potential significance of the trend to the company. Here is an example showing how to structure an answer - let’s
- 2. assume we are analysing the liquidity of a company and we have identified a significant decrease in the current ratio: Liquidity Analysis Liquidity refers to the ability of a company to generate sufficient cash to meet its short term obligations. If a company has poor liquidity it may not be able to make payments when they fall due. The current ratio is a measure of liquidity which compares current assets with current liabilities. The liquidity of ABC Plc appears to have deteriorated during the year. This is evidenced by the reduction in the current ratio from 1.3 in 2013 to 1.1 in 2014. The reduction in the current ratio means that ABC Plc have less current assets, such as inventory and trade receivables, at their disposal to generate cash internally to meet their short term obligations. The level is well below the traditional benchmark for the current ratio of 1.5 and is also below their main rival, XYZ Plc, who reported a current ratio of 1.7 in 2014. The key driver of this trend is the fact that the company has no inventory in 2014, which reduces the value of current assets. This trend was caused by a decision to reduce production in 2014, meaning that no goods are left in stock at the year end. This could be significant as it means sales have been lost. Conclusions You should include the following in your conclusions: - A brief summarise of the key findings of the analysis. - A suggestion of recommendations which may improve your company’s financial position and performance in the future. - A brief overview of the key limitations of your analysis. Appendices Please supply all the working to the ratios calculated for all periods of review for your analysis. Note that the word count for this task is 1,200 words. You do not have enough word count to discuss every ratio in the
- 3. same amount of detail, so while you should ensure that all ratios are mentioned, you should focus your discussion on the ratios which are most significant for your company. Assessment Criteria For Task 1, the following marking criteria will be applied: 1. Structure and presentation (10%): 1. Provides a clear and coherent structure including an introduction, conclusion and appropriate headings and sub- headings. 1. Professionally written and presented with a logical flow. 1. No (or only minor) spelling and grammatical errors. 1. Understanding of relevant concepts (20%): 1. Demonstrates an understanding of the meaning and relevance of categories of ratios and individual ratios. 1. Presentation of ratios (10%): 1. Clear presentation of ratios including relevant workings for calculations 1. Analysis (50%): 1. Comprehensive discussion of appropriate business factors which potentially explain the movements and comparisons identified. 1. Makes appropriate use of the ROCE tree for profitability and efficiency ratios. Makes appropriate references to target values of liquidity and stability ratios. 1. Provides linkages between ratios. No errors and no irrelevant material provided. 1. Demonstrates an understanding of the limitations of the analysis. 5. Commercial awareness (10%):
- 4. 1. Includes appropriate reference to decisions made during the business simulation, commenting on the impact that those decisions have had on the business’ financial positon and performance. Team 5 ElectroServe Plc. Year: 2032 _____________________________________________________ _____________________________________________________ ____ STATEMENT OF PROFIT & LOSS STATEMENT OF FINANCIAL POSITION W$000 W$000 W$000 W$000 REVENUE 5413 NON CURRENT ASSETS: Materials 3158 Property, plant & equip. 1750 Direct Labour 1497 Development Costs 740 COST OF SALES 4655 Total Non Current Assets 2490 GROSS PROFIT 758 CURRENT ASSETS: OPERATING EXPENSES: Inventory 0 R & D 200 Receivables 890 Marketing 204 Cash at bank 101 Warranty 0 Total Current Assets 991 Administration 287 Overheads 1076 TOTAL ASSETS 3481 Total Expenses 1767 CURRENT LIABILITIES: Payables 859 OPERATING PROFIT -1009 Bank borrowings 0 Net Financial Cost 73 Accruals 40
- 5. Provisions 230 PROFIT BEFORE TAX -1082 TOTAL CURRENT LIABILITIES Taxation 000 1129 NON CURRENT LIABILITIES PROFIT AFTER TAX -1082 Long Term Loan 1000 NET ASSETS 1352 EQUITY: Share Capital 120 Share Premium Account 0 Retained Profits 1232 TOTAL EQUITY 1352 _____________________________________________________ _____________________________________________________ ____ STATEMENT OF CASH FLOWS PERFORMANCE INDICATORS Profit after tax -1082 Staff Morale 6 Add: Depreciation +194 Staff Skills 7 Add: Amortisation +200 Staff Turnover (%) 8 Change in working capital: Product Quality 6 1. Inventory Change +611 Consumer Satisfaction 6 2. Receivables Change +482 Retailer Satisfaction 7 3. Payables Change -004 Brand Awareness (%) 20 4. Accruals Change +040 5. Provisions Change +230 Less: Capital Expenditure -700
- 6. Less: Dividends Paid -000 Add: Proceeeds from share issue +000 Add or Less: Change in bank loan +000 Net Cash Flow -029 _____________________________________________________ _____________________________________________________ ____ Team 5 ElectroServe Plc. Year: 2032 _____________________________________________________ _____________________________________________________ ____ KEY RATIOS SUPPLY AND DEMAND Sales Volume I (units) 1263 Return on Net Assets (%) -80.0 Lost Sales I (units) 947 Sales Volume II (units) 0 Gross Margin (%) 15 Lost Sales II (units) 0 Operating Expenses to Sales (%) 32.6 Production I (units) 1100 Revenue on Capital Employed 2.30 Production II (units) 0 Total Capacity (units) 1644 Acid-Test Ratio 0.88 Service Revenue (W$) 0 Inventory Days 0 Warranties Sold 0 Receivables Days 60 Call Outs 0 Payables Days 67 Repairs Requested 0 Unfulfilled Repairs 0 Interest Cover -12.6 Earnings / Share (W$) -9.02
- 7. SharePrice(W$) 3 _____________________________________________________ _____________________________________________________ ____ MESSAGES: Auditors report your Gross Margin is too low. Your retailers complain about the late deliveries. Shareholders are concerned about your current financial performance. Completed R & D: 10, 14, _____________________________________________________ _____________________________________________________ ____ MARKET SUMMARY Team 1 Team 2 Team 3 Team 4 Team 5 Team 6 Supply : Production I (units) 1534 1200 1450 1534 1100 1400 Production II (units) 0 0 0 0 0 0 Closing inventory I (units) 0 0 610 0 0 129 Cl. inventory II (units) 0 0 0 0 0 0 Lost sales I (units) 643 22 0 522 947 0 Lost sales II (units) 0 0 0 0 0 0 Demand : Price I 4799 6000 7000 4800 5350 6000 Price II 0 0 0 0 0 0 Market Share (%) 18.3 18.7 10.0 19.9 15.1 18.0 Sales Volume I (units) 1534 1563 840 1666 1263 1507
- 8. Sales Volume II (units) 0 0 0 0 0 0 Salaries (W$ p.p. p.a.) 10.1 10.0 10.5 10.2 10.4 10.5 Financials : Revenue (W$) 5909 7502 4718 6409 5413 7236 Net Profit (W$) -524 188 -8 -482 -1082 483 Net Assets (W$) 1642 2682 3111 1893 1352 5661 Bank Borrowings (W$) 998 Business Simulation Tasks Assessed Task 1: Financial Analysis The Board of directors has asked you to perform a review of the financial performance and financial position of the business based on the company’s 2032 financial statements and key financial ratios, and using any other available information which you consider to be relevant. Required: Prepare a report for the Board of Directors in which you analyse the company’s financial performance and financial position and which specifically addresses the company’s profitability, efficiency, liquidity and stability. Word limit: 1,200 words (excluding tables and appendices)