Module code and Title: AAF044-6 Accounting and Finance Assignment Sample
1. Introduction
Introduction of the report
Investment is a key function for companies as it helps to increase financial position in an effective way. The aim of this paper is the identification of the financial performance of Xpediator Plc. This research has discussed the capital structure of this company. In addition, different appraisal tools for investment have been identified in this report. The corporate governance of this company has been recognised by this report significantly. In this way, this research will be able to identify the overall performance of this selected company.
Introduction to the organisation
Xpediator Plc is an international freight management company which has grown fast. This company was established by Stephen Blyth in the year 1988. The headquarters of this company is situated in the United Kingdom. It is identified from the annual report of this company that the net profit, total assets, and total equity of this company stand at £588000, £196125000, and £29190000 respectively in the year 2021 (Xpediator.com, 2021). Around 1432 employees are working under this company in the year 2020.
Objectives of the selected company
The primary goal of this company is to deliver a supply chain solution which will be dramatic. In addition to this, it is also identified that this company has a vision of becoming leading international management of freight and logistics by providing world-class services to its customer (Xpediator.com, 2022).
Identification of key resources
There are four primary resources that a company has implemented in the business to improve performance such as financial resources, operational resources, managerial resources, and human resources. This company has all these resources that help to improve the overall performance of this company.
Identification of issues and challenges
There is a significant issue faced by this company during operating its business such as share falls. The shares of Xpediator fell on Monday after cutting the annual dividend of this which hurt operations in Lithuania (Morningstar.co.uk, 2022). Such an issue of this company makes implications for the operational activity of this company in a negative way.
Challenges to implementing continuous budgeting
Budgeting is a core strategy which has been considered by different business entities in order to optimum use of financial resources through reduced wastage and appropriate allocation. Budgeting is nothing but a process to allocate financial resources based on requirements as well as important in the business process. Continuously budgeting is a process to prepare a budget for one more month after ending multiple periods. As stated by Abu et al. (2019), there are different issues that may be faced by Xpediator to implant budget.
It has been analysed from the annual report of the company that the company has continuously increased its administrative and other management costs due to increased business size and performance. The company has suffered from different challenges to ascertain appropriate budget costs for the next month or period by considering the current level of expenses and costs.
Xpediator has different types of costs which it needs to budget for the next period based on the current time. The company has incurred total costs of £70.01 million in 2021 which will continuously increase from 2017 due to the inflation rate as well as increased business. Thus, it has been expected the total costs of Xpediator may be increased in future to the value of £74.88 million.
Among different types of costs, administrative costs play a vital role in total costs which may be expected at £22.11 million. Besides that, Xpediator has also incurred insurance and depreciation more after administrative costs which may exist at £9.20 and £8.21 million next year. It has been analysed from the annual report for the last five years that the company has focused on the continuous budgeting process.
Figure 1: Different costs of the company (Source: Self-developed)
Figure 2: Total and budgeted costs of the company (Source: Self-developed)
Complexity: The process to start with different types of costs and expenses is a complex process due to considering different information and data for a certain cost for the next period. The company may face a certain cost for different types of administrative and operating processes. As an organisation needs to consider the current level of performance of products as well as operating efficiency and compare it with market performance and expected performance in future while a certain expected cost for different operations and business processes.
As stated by Kabeyi (2019), Cost management is required to collect data from different departments as well as CRM to manage consumers as well as provide goods and services as per requirement. Therefore, calculating the expected cost for different processes and operations for the future is a complex process for any organisation. Nevertheless, the company may implement big data technology to ascertain cost as well as expected expenses for any business operation in future.
Time-consuming: The budgeting process is also time-consuming as it consists of different types of statistical and data analysis processes. Financial analysts as well as management needs to collect data from different business operations and areas as well as interpret different steps and strategy in order to evaluate an accurate budgeted cost and expenses for different business operations. Besides that, the company also compares current budgeting costs and expenses with past expenses in order to minimise costs as well as identify the necessary cost for an effective and accurate budget which ensures the better financial performance of the company.
Continuously planning: The organisation needs to identify different types of aspects and factors in to continue planning for different operations and steps. As the company has engaged in transportation at a global level, it is necessary for the company to plan different types of challenges which may be faced by the organisation in future in order to maintain better financial health and performance. As argued by Dulac et al. (2021), among different aspects and factors, the company may face challenges to a certain and accurate budget due to inflation rate and fluctuation of different types of material and resources such as petrol and other energy sources for operating numbers of vehicles and global level.
Accuracy: accuracy is also a key factor when an organisation calculates a certain budget for future periods. Different companies face different types of is it to a certain High court budget for their business operations in future. As companies face inflation rates as well as in price and cost of different types of resources and business operations which may reduce the accuracy of budget. Thus, it observes that a company has to face a certain accurate budget while engaged in a business process which consists of a high level of 32 inflation rate and financial performance of the industrial market.
Developed flexible budget: Any business entity is required to develop a flexible budget which has different costs as necessary, as well as financial managers, are able to adjust any fluctuation in different costs and expenses. It is a core challenge for any business to adjust any shortfall or increase in budgeted costs sheet due to allocated total financial resources to different processes and operations. The company has required too much to develop a flexible budget for the company.
Optimising: The Company has faced issues or threats to maintain better productivity through an effective budgeting process. As any business focuses on continually budgeting processes to maintain an optimum level of return as well as enhanced efficiency of business processes. The company may suffer from challenges in future to proper allocation to different technological processes as well as development.
3. Investment appraisal tools
Presentation of reasons
There are primarily three reasons for which it is considered that the cash of today is more valuable than the cash of the future such as the opportunity cost, higher power of buying, and no risks. These reasons are discussed below:
Opportunity cost
As per the viewpoint of Blankespoor et al. (2020), opportunity cost is referred to as the ability of an individual in order to make investments by the use of funds rather than spending them simply. This analysis helps to identify that an investor can use this cost for making an investment rather than using it simply. In this regard, it is identified that in case an investor makes an investment today than in the future he/she will get the investment after deduction of additional interest. This analysis helps to identify that the value of money will be reduced in the future. This research has proved that the cash of today is more worth than the cash of the future.
Higher power of buying
Purchasing power is referred to as the value of the currency that a customer pays for the purpose of purchasing a number of goods and services according to the research of Yosephet al. (2020). On the basis of this analysis, it has been represented by this study that purchasing power of customers makes implications on the time value of money. In this regard, it is observed that purchasing power of customers is linked with the rate of inflation in a negative way.
It means in case the inflation rate increases then purchasing power of customers will decrease in an effective way. In case purchasing power of customers decreases then the purchase of goods or services will decrease as well. Therefore, it is stated that the high power of purchasing makes an impact on the time value of money and due to this reason, today’s cash is more valuable than the cash of the future.
No risks
Risk refers to the variation in the result from the expected value of the project as per the viewpoint of Trisos et al. (2020). This analysis represents that an investor is responsible to bear risks from its investment. On the basis of this analysis, it has been represented that risks is a major component that makes implication on the time value of money. Increased risks of a project provide more impact on the time value of money while on the other hand, fewer risks represent less impact on the time value of money. Therefore, it is stated that there is a relationship between risk and the time value of money in a positive way.
The overall analysis proves that the cash of today is more valuable and worth than the cash of the future. Therefore, there is a need to consider the time value of money during making an investment by an investor.
Reason for selecting a project with a short payback period.
The research of Krizanovastated et al. (2019) indicates that tools regarding investment appraisal help to identify whether the project will be feasible or not. This analysis represents the importance of considering investment appraisal tools before making an investment. There are several techniques of investment appraisal such as “NPV”, “IRR”, “Payback period”, and many others. This research has considered NPV and PBP for the purpose of identifying the feasibility of the project.
Discounting factor (10%)
Discounted cash flows
Initial investment (£000)
10000
2017
7,340
0.909090909
6673
2018
9,647
0.826446281
7973
2019
11,951
0.751314801
8979
2020
12,720
0.683013455
8688
2021
11,684
0.620921323
7255
Net cash flows (NCF)
39567
Initial investment (£000)
10000
Net Present Value (NPV) (£000)
29567
Payback Period (PBP) (In years)
2.04
Table 1: Calculation of Net Present Value and Payback Period (Source: Self-created)
In this regard, this research has made a few estimations such as a discount rate of 10% and an initial investment of £10000000. The cash flow of Xpediator from the year 2017 to 2021 has been considered in this research. The flow of cash stands at £7340000, £9467000, £11951000, £12720000, and £11684000 in 2017, 2018, 2019, 2020, and 2021 respectively. Based on the analysis of discounted flows of cash stand at £6672000, £7973000, £8979000, £8688000, and £7255000 in 2017, 2018, 2019, 2020, and 2021 respectively.
Net flows of cash stand at £39567000 and NPV stands at £29567000. According to the research of Rocha et al. (2018), NPV helps to identify the feasibility of a project in which a positive NPV represents the feasibility of the project. As the NPV stands at a positive value, therefore, it is stated that this company will be able to generate profit as well as a positive return from an investment.
The payback period represents the time after which a company has become able to generate profit and at which the company can recoup its investment money according to the research of Castiglione and Alfieri (2020). The period of payback for this company stands at 2.04 years which helps to identify that this company will be able to generate profit and recoup its investment fund after two years. As this company has a short period of payback, therefore, it is stated that this company can make an investment in this project to generate profit quickly.
The research of Yang et al. (2020) stated that making an investment that has a short period of payback is beneficial for the investor as it helps to generate profit at a high range. This analysis helps to identify that it is a sound strategy that an investor to accept an investment with a short period of payback.
In addition to this, the period of payback with a short period represents increased efficiency as well as an improvement of the liquidity position of the company as per the viewpoint of Kontuš and Mihanović (2019). Therefore, it is stated that this company will be able to improve its liquidity position in case of considering a project with a short period of payback. This analysis represents that making investments in projects with a short payback period is an effective strategy to generate increased profit and liquidity position.
Corporate governance
Corporate governance of any business has been analysed through compliance with all rules and regulations to operate business steps. Any business needs to implement some financial as well as non-financial rules in order to ensure better corporate governance. As suggested by Eulerich et al. (2019), there are different boards as well as committees having a business each has some authority, as well as responsibility, which must be considered by the authority to operate as well as take any division in the business. Whereas the audit committee needs to comply with all rules and regulations to maintain as well as perform financial operations. The main function of an audit committee of the company are discussed as follows
Internal control: audit committee is responsible for maintaining appropriate internal control through implementing all rules and regulations for financial and non-financial operations. As opined by Chukwu and Nwabochi (2019), the audit committee engaged in implementing financial rules and regulations to perform any financial transaction between two or more organisations within or outside the country’s neighbour the less oil committee has also focused on implementing government guidelines and regulations in business operations such as the purchase of different types of materials and resources recorded in different worksheets.
Prepared financial reports: The old committee has also played an important role in preparing cancer reports and annual reports consisting of financial data as well as a company strategy to operate their business. Therefore, its committee has also played an important role in preparing different financial reports such as the income statement balance sheet and cash flow statement to indicate the financial health and growth of the company towards different district holders. Among different rules and functions, it is a key rule of the committee to disclose all financial information in the data of a company without any manipulation having appropriate evidence and relevance.
Issue face to the audit committee
The audit is responsible to identify different types of financial as well as managerial issues which may affect the financial health of a company. It is a key challenge for any auditors of a company to identify different financial risk factors such as inflation as well as the impact of global and domestic GDP on business. Besides that, audit committees of different global business entities face issues in implementing rules and regulations of different countries which is a complex process for internal audit committees.
As stated by Ali and Handayani (2018), the audit committee is also required to disclose overseas as well as financial health in a different format which is relevant for the country where the company has published an annual report. The financial report should consist of appropriate evidence as well as in relevant format which is developed by the audit committee. There are key issues which may be faced by the audit committee due to the implementation of financial rules and framework in the preparation of financial reports.
Steps to mitigate audit risk and issues
There are different strategies that should be considered by the audit committee in order to mitigate issues as well as challenges faced to implement financial rules and frameworks. As opined by Munoko et al. (2020), the audit committee may implement AI as well as fintech technology to perform financial transactions. These steps not only assist to mitigate different issues nevertheless but also maintain better internal control in business as well as reduce the complexity to prepared financial reports.
5. Conclusion
The financial performance of an organization generally depends on operational and managerial activity. The primary finding of this research is that Xpediator is a transport company that is listed on LSE, with headquarters in the UK. It is identified that there are a few issues faced by this company during the implementation of the budget. However, the budgeted profit of this company increases from the year 2017 to the year 2022. The issues that are faced by this company during implementing the budget are complexity, increased consumption of time, accuracy, and many others.
It is observed that this company will be able to generate profit quickly by making investments as NPV is positive and PBP is also short. This analysis helps to identify that the strategy of making investments with short PBP is effective. Furthermore, it is identified that the corporate governance of this company is strong. Detailed analysis of financial sustainability of the organization has been done in this aspect.
Reference list
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