Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Financial Management Expert

MK Robe-Stones Limited Business Plan

MK Robe-Stones (MK-R-S) is a large manufacturing firm which was set up as a Limited company 6 years ago, in 2009, by a family organisation. The firm was originally started as a business to sell the main family business by-product which is a type of oil.  MK Robe-Stones main product is therefore a by-product of this process, which is primarily involved in the Chemicals business.

At the conception the firm (MK-R-S) the initial capital for the company came from the Director of the Parent Company (Gordon Robe-Stones), his children, Jack, Lucinda and Josh Robe-Stones’ and a few other individuals whom knew of the prospects of the company.  The total capital which they managed to gather via this method was £5,000,000. The company by the end of its first year trading had retained profits which accumulated to £507,000. Thus by the end of the companies first year, the Profit and Loss Statement and the Balance Sheet had the following composition. (Short-form only):

                                                                             31st January 2009
Profit and Loss Account of MK Robe-Stones Ltd.
           
Sales Revenue                                                           £ 8,902,300
    Cost of Sales                                                        £ 6,870,120
Gross Profit                                                               £ 2,032,180
    Administration Expenses                                          £ 879,000
    Distribution Expenses                                              £ 230,000
Operating Profit                                                         £ 1,383,180
    (Net) Interest                                                       £ 50,500
Profit Before Tax                                                       £ 1,332,680
    Taxation                                                              £ 466,438
Profit Attributable to Shareholders                                £ 866,242
    Dividends Paid to Shareholders                                 £ 359,242
Retained Profit C/F                                                    £ 507,000

The subsequent years following up to the present day, the company has the Profit and Loss statements of:

1646_Profit and loss statements.jpg

The industry benchmarks for the companies which are in similar industries are as follows for the key financial ratios. The information which is presented below is the 5 year average and associated standard deviations in terms of % (or terms of reference):

Ratio                                 Average    Standard Deviation
Gross Profit Margin                 28%              8%
Operating Profit Margin            13%             7%
Return on Capital Employed       26%            3%
Current Ratio                       10.04 : 1         3.0
Asset Turnover                    £1.96 : 1        £0.89
Gearing Ratio                       15.6%             5%

The respective years’ Balance Sheets are as follows:

2308_Balance sheet.jpg

The company has been providing good returns to the shareholders of the organisation over the last few years. However, the senior managers are having concerns since they have been aware that the firm is becoming a considerable investment in terms of their personal time. They are thinking of investing some extra money in terms of equity capital that will secure a reduction in the direct labour hours which are needed to run the firm effectively. The effect of this would be a projected saving of 7% of the Costs of Sales, for the given a given increase in the Sales Revenue Projections. This would have the conditions of a 9% increase in the Administration and Distribution Expenses.

The company has also been contacted by a local banking organisation, which has informed the Management that they are running low on cash, and have offered them a loan of £500,000, to help them with the current cash flow situation. The company would be looking at paying a Rate of Interest on the Loan of 6.5% p.a. and making no long-term capital repayments for at least 10 years.

Required:

A. As a Management Consultant, with some financial expertise you have been asked to prepare a Report to the Management of the firm which covers the Company performance over the last 5 years, in detail, including 2013’s results.  This is expected to cover the key performance ratios of Profitability, Liquidity and Efficiency and Financial Structure Ratios. Where ever possible you should draw upon the Financial Information provided by the industry averages to make a comparison.

B. The Management have asked you to consider the possibility that the firm may become insolvent and assess whether the loan would help with this aspect specifically.  The Manager would like you find out the Ratios involved in Financial Bankruptcy Projections (I.e. Altman’s Z-Score and any others). You should critically appraise this model of Bankruptcy Projection stating any assumptions that you make in the report.

C. The report should also detail to the Management some of the theoretical drawbacks of the type of analysis, and generally the weaknesses of the Ratio Analysis.

D. The management would also like you to put together a projection of the company making a (in line with the average sales increase?) and an investment of £649,000 in the fixed assets of the company, which could be paid for by taking out the loan of £500,000.
You are required to state any other supplementary assumptions which you make.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M91631

Have any Question? 


Related Questions in Financial Management

1 calculate standard deviation variance covariance and

1. Calculate standard deviation, variance, covariance, and correlation between assets II and III and explain portfolio risk in terms of these two assets. 2. Calculate standard deviation, variance, covariance, and correla ...

Assume you are the chief financial officer at porter

Assume you are the Chief Financial Officer at Porter Memorial Hospital. The CEO has asked you to analyze two proposed capital investments - Project X & Project Y. Each project has a net investment outlay of $10,000 and t ...

Erwin enterprises has 10 million shares outstanding with a

Erwin Enterprises has 10 million shares outstanding with a current market price of $10 per share. There is one investment available to Erwin, and its cash flows are provided below. Erwin has a cost of capital of 10 perce ...

If a stock has an expected return of 20 and a standard

If a stock has an expected return of 20% and a standard deviation of 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?

You want to have 31664 in cash to buy a car in 4 years you

You want to have $31,664 in cash to buy a car in 4 years. You expect to earn 11.5% per year on your savings. How much do you need to deposit today if this is the only money you save for this purpose?

Beta and required rate of returna stock has a required

Beta and required rate of return A stock has a required return of 9%; the risk-free rate is 2.5%; and the market risk premium is 3%. What is the stock's beta? Round your answer to two decimal places. If the market risk p ...

Stacker weight loss currently pays an annual year-end

Stacker Weight Loss currently pays an annual year-end dividend of ?$2.002.00 per share. It plans to increase this dividend by 2.5 % 2.5% next year and maintain it at the new level for the foreseeable future. If the requi ...

Kim edwards and chris phillips are both newly minted

Kim Edwards and Chris Phillips are both newly minted thirty-year-old MBAs. Kim plans to invest $1,000 per month into her 401(k) beginning next month. Chris intends to invest $2,000 per month in his 401(k), but he does no ...

Buying stock with a market order you would like to buy

Buying Stock with a Market Order You would like to buy shares of International Business Machines (IBM). The current bid and ask quotes are $96.35 and $96.60, respectively. You place a market buy-order for 400 shares that ...

Jkrsquos is borrowing 132000 for three years at an apr of

JK’s is borrowing $132,000 for three years at an APR of 7.6 percent. The loan calls for the principal balance to be reduced by equal amounts ($44,000 per year) over the life of the loan. Interest is to be paid in full ea ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen