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 describe what is meant by a firms financial failure2

1. Describe what is meant by a firm's financial failure 2. According to the Beaver study, which ratios should be watched most closely, in order of their predictive power? 3. According to the Beaver study, three current a ...

An investment has an installed cost of 573382 the cash

An investment has an installed cost of $573,382. The cash flows over the four-year life of the investment are projected to be $202,584, $246,318, $194,674, and $162,313. If the discount rate is zero, what is the NPV? (Do ...

National trucking has paid an annual dividend of 100 per

National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm' ...

If you compare the asset in exercise 1 to the following

If you compare the asset in Exercise 1 to the following asset, can you quickly tell which one is riskier? Exercise Calculate the expected return on an asset that has the following probable returns:

Number of periods of an annuityyou have 5332345 in a

Number of Periods of an Annuity You have $53,323.45 in a brokerage account, and you plan to deposit an additional $6,500 at the end of every future year until your account totals $300,000. You expect to earn 8.3% annuall ...

Ace products has a bond issue outstanding with 15 years

Ace Products has a bond issue outstanding with 15 years remaining to maturity, a coupon rate of 8.4% with semiannual payments of $42, and a par value of $1,000. The price of each bond in the issue is $1,240.00. The bond ...

Monroe inc is an all-equity firm with 500000 shares

Monroe Inc. is an all-equity firm with 500,000 shares outstanding. It has $2,000,000 of EBIT, and EBIT is expected to remain constant in the future. The company pays out all of its earnings, so earnings per share (EPS) e ...

Lewis health system inc has decided to acquire a new

Lewis Health System Inc. has decided to acquire a new electronic health record system for its Richmond hospital. The system receives clinical data and other patient information from nursing units and other patient care a ...

The shareholders of the stackhouse company need to elect

The shareholders of the Stackhouse Company need to elect nine new directors. There are 900,000 shares outstanding currently trading at $50 per share. You would like to serve on the board of directors; unfortunately no on ...

Suppose economists have determined that the real risk-free

Suppose economists have determined that the real risk-free rate of return is 3 percent and that inflation is expected to average 2.5 percent per year long into the future. A 1-year Treasury note offers a rate of return e ...

  • 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