Ask Question, Ask an Expert


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.


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

Write the given assignment1you won a lottery with a prize

Write the given Assignment: 1.You won a lottery with a prize of $100,000. There are two payment options: A. Ten consecutive annual payments of $10,000 each with the first payment made in one year. B. One immediate lump-s ...

Consider the monthly log returns of crsp equal-weighted

Consider the monthly log returns of CRSP equal-weighted index from January 1962 to December 1999 for 456 observations. You may obtain the data from CRSP directly or from the file m-ew6299.txt on the Web. (a) Build an AR ...

Suppose that you estimate the following female labor supply

Suppose that you estimate the following female labor supply relationship: Labor supplyi = 2320 + 85(after-tax wage)i + 320(college graduate)i - 120(married)i , where labor supply is measured in annual hours worked and wa ...

Under the maastricht treaty a country may adopt the euro

Under the Maastricht Treaty, a country may adopt the euro only if its government budget deficit is less than 3 percent of GDP. What is the rationale for this requirement?

Assume that the equilibrium return on a financial

Assume that the equilibrium return on a financial instrument is 10 percent. If the current price is $100 and the instrument does not pay interest or dividend, what is the price expected one year from now when the market ...

Consider the monthly simple returns of general electric ge

Consider the monthly simple returns of General Electric (GE) stock from January 1926 to December 2003. You may download the data from CRSP or use the file m-ge2603.txt on the Web. Convert the returns into log returns in ...

For an investment in a foreign-currency-denominated

"For an investment in a foreign-currency-denominated financial asset, part of the return comes from the asset itself and part from the foreign currency." Do you agree or disagree with given statement? Explain.

Rad the case and answer the following questionthe case is

Read the case and answer the following question. The Case is : " Globalizing the Cost of Capital and Capital Budgeting at AES" What is the value of the Pakistan project using the cost of capital derived from the new meth ...

Suppose the federal funds rate is 3 percent bond traders

Suppose the federal funds rate is 3 percent. Bond traders expect it to remain at that level for 3 months and then rise to 3.5 percent for 9 months. However, the FOMC raises the rate to 3.5 percent immediately. After this ...

Assignmentinstructions write out your steps and financial

ASSIGNMENT Instructions: Write out your steps and financial calculator function keys. Complete work is necessary to receive full credit. 1. You want to save some money for your two dream vacations as well as have some mo ...

  • 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

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate