Financial Management Assignment
AIM(S)
To provide students with an in-depth study of financial techniques and processes which enable management to evaluate and make strategic decisions in the context of competitive international environments.
The course will concentrate on financial performance assessment and capital project appraisal/capital rationing.
LEARNING OUTCOMES
Upon the successful completion of this module, the student should be able to demonstrate the ability to:
1. Research, apply and evaluate a variety of financial assessment techniques for application to a case study.
2. Research, evaluate and critically discuss various issues and theoretical frameworks used in the management and control of financial resources.
INDICATIVE CONTENT
- Financial statements as a means of communication; users of financial information; ratio analysis; trend analysis; interlinking of ratio results; comparison with similar sized businesses and industry sector norms; recommendations and conclusions; follow up analysis and interpretation; corporate failure prediction models; critical appraisal of techniques; application to international companies.
- Objectives of working capital management; methods of financing working capital (short and long term financing requirements); management and control of trade credit and trade debt; cash management, cash operating cycle, management of stocks; application of controls to international companies, evaluation of conflicting aims.
- Project appraisal including payback, APR, NPV, IRR; decision to make, buy or lease; effects of capital rationing, taxation and inflation; project appraisal; post completion audit and critical appraisal of the techniques applied; requirements of international companies and global projects.
- Corporate re-organisation, including mergers, takeovers, buyouts, demergers and corporate failure.
- Financing quality systems initiatives; financial metrics for QA processes.
TASK DESCRIPTION
The following five year summary relates to OUTDOORS plc who produce a variety of high quality garden furniture and associated items.
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2015
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2014
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2013
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2012
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2011
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FINANCIAL RATIOS
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Profitability
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Margin
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Trading Profit
Sales
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%
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7.8
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7.5
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7.0
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7.2
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7.3
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Return on assets
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Trading Profit
Net operating assets
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%
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16.3
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17.6
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16.2
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18.2
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18.3
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Interest and Dividend cover
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Interest cover
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Trading Profit
Net finance charges
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times
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2.9
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4.8
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5.1
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6.5
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3.6
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Dividend cover
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Earnings per Ordinary share
Dividend per Ordinary share
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times
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2.7
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2.6
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2.1
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2.5
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3.1
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Debt to equity Ratio
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Net borrowings
Shareholders funds
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%
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65.9
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61.3
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48.3
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10.8
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36.5
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Liquidity Ratios
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Quick ratio
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Current assets less stock
Current liabilities
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%
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0.74:1
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0.73:1
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0.78:1
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1.13:1
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0.93:
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Current ratio
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Current assets
Current liabilities
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%
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1.34:1
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1.30:1
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1.42:1
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1.79:1
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1.75:1
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Asset ratios
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Operating asset turnover
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Sales
Net operating assets
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times
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2.1
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2.4
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2.3
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2.5
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2.5
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Working capital turnover
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Sales
Working capital
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times
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8.6
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8
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7
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7.4
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6.2
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Per share
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Earnings per share
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p
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15.65
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13.6
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10.98
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11.32
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12.18
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Dividends per share
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p
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5.90
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5.40
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4.90
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4.60
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4.10
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Net assets per share
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p
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102.10
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89.22
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85.95
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85.79
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78.11
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N.B Net assets include tangible fixed assets, stock, debtors and creditors. They exclude borrowings, taxation and dividends.
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There is a potential to expand the business, the directors identifying three main options for a four-year plan:
A. Expand its flourishing retail outlet to include all products.
B. Develop into internet sales.
C. Produce greenhouses and conservatories.
These options would require initial expenditure of (A) £75,000, (B) £120,000, or (C) £200,000. The most recent estimates on year-end cash flows is as follows:
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Year 1
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Year 2
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Year 3
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Year 4
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£'000
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£'000
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£'000
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£'000
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(A)
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40
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50
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50
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50
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(B)
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50
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60
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80
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100
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(C)
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50
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100
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150
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150
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1) Prepare a report on the company, clearly interpreting and evaluating the information provided in the five year summary covering the key areas of profitability; liquidity; investment; efficiency and gearing. You should state any assumptions you make as part of your analysis and provide conclusions and recommendations, incorporating suggestions of areas requiring further investigation.
2) The report should incorporate the following:
a. An evaluation of the three investment options using the net present value (NPV) technique, assuming the cost of capital to be 10%, and recommend, with reasons, one option.
b. Find the approximate internal rate of return (IRR) of your choice in (a) above.
c. Interpret your results for management, to include: -
i. A presentation of the theoretical arguments for the choice of net present value as the best method of investment appraisal.
ii. Explain the continued popularity among decision makers of non-discounting methods of investment appraisal.
iii. Identify what other factors should be considered before an investment decision is made.
d. If funds are limited to £250,000 and the projects are divisible, (i.e. it is possible to undertake a fraction of a total project), calculate the optimal investment policy and the resulting total NPV from your investment policy.
3) In conclusion, advise the Board of outdoors plc how the proposed investment programme might be financed, identifying the main sources of finance available, critically assessing the main advantages and disadvantages of each.
Attachment:- Assignment.rar