ACC7032 Managerial Finance Assignment Sample
ACC7032 Managerial Finance Assignment Sample
Question 1
Q 1.1
Ratio analysis
GPM46%
| Profitability | KINDRA PROPERTIES | |||
| Gross profit margin | Gross Profit x 100
Total Revenue |
Gross profit | 354,781 | |
| Total Revenue | 765,101 | |||
| Net profit margin | Net Profit x 100
Total Revenue |
Net profit | 224360 | |
| Total Revenue | 765,101 | |||
| NPM | 29.3% | |||
| Asset Turnover | Turnover x100/Total assets | Turnover | 765,101 | |
| Total assets | 1153867 | |||
| ATR | 66.30755538 | |||
| Return on assets | Net Operating profitx100/Total assets | Net operating profit | 224360 | |
| Total assets | 1153867 | |||
| ROA | 19.44418204 | |||
| Return on capital assets | Net operating profitx100/ total capital employed | Net operating profit | 224360 | |
| Total capital employed | 1093105 | |||
| ROCE | 20.52501818 | |||
| Financial risk of gearing ratio | KINDRA PROPERTIES | |||
| Gearing ratio | Total Debt
Total Equity
|
Non-current liabilities | 735,908 | |
| Total capital employed | 1,093,105 | |||
| Gearing ratio | 0.67 | |||
| Interest coverage ratio |
Interest expense
|
Net operating profit | 224,360 | |
| Interest expense | 20,110 | |||
| interest coverage | 11.16 | |||
| Liquidity Ratio | KINDRA PROPERTIES | |||
| Current Ratio | Current Asset
Current Liabilities |
Current Asset | 107,887 | |
| Current Liabilities | 60,762 | |||
| Current ratio | 1.78% | |||
| Efficiency ratio | ||||
| Receivable collection period | Trade receivable x365/ turnover | Trade receivable | 40345 | |
| Turnover | 765,101 | |||
| Debtor collection period | 19.24703405 | |||
| Payable payment period | Trade payablex100/Cost of sales | Trade payable | 60762 | |
| Cost of sales | 410320 | |||
| Creditor payment period | 54.05 | |||
| cash cycle | Receivable -payables | -34.80 |
Table 1: Ratio analysis of the company (Source: Self-created)
Q 1.2
1.2.1 Introduction
Seiko Holdings Plc is an investment provider only that provides its services in the UK and Europe the company mainly operates from Birmingham. Moreover, the company by its work wants to provide some benefits to human beings that provide good mental peace to the company. The current study describes that at the current time, the organisation wants to invest in a company and the organisation has two options for the investment.
1.2.2 Strategic investment
Strategic investment refers to the company investing in a company that provides better opportunities for the company. As per the information provided by Boardman et al. (2020), the company can generate profit from the loan amount and can also provide a food return to the company. Therefore, all companies want to invest in a developing business so the profits can be maximum for the business. As per the view of Wright et al. (2020), the overall activity of the company can be understood from the income statement of the company. Moreover, it includes all activities of the company by the company entering cash in the business as well as expenses of the available cash of the business.
The above figure refers to the profit and loss of the company and the revenue of both companies is approximately the same. The administration expenses of the first company are approximately double those of the other business. Based on the opinion of Lee et al. (2020), the various types of expenses are different from the other company as all companies are different types of expenses. In addition to this, the profit of the second company is approximately three times of the company. It refers to the second coming generating more profit from the same investment.
1.2.3 Qualitative Issues in the Investment
Qualitative issues of the company can be observed from the net profit margin of the company as the company that has more NPM has less number of issues. Based on the opinion of Mahata and Mahata (2020), the issue is when the company is minimum the company can take a good profit margin in the business. Moreover, satisfied customers can pay a high amount for the product to the company. In addition to this, the sales expenses of the company are minimal. It also refers to the fact that the company has a good reputation in the market. As per the discussion of Jiang et al. (2020), the company did not want help from the other company to sell its products, as the customer retention rate is high in the business.
1.2.4 Recommendation
- The company can invest in KINDRA PROPERTIES as the company has a good profit margin.
- The company can first provide the loan in the safest way of investing in a company and it ensures the security of the investment.
1.2.5 Conclusion
Financial analysis assists to observe the performance of the company as it evaluates all the activities of the company. The current study provides knowledge of investing activities as the company when investing in a company after proper analysis assists to get maximum profit from the investment. The first choice of investing in the company is in the healthcare sector as the sector works for human beings. It refers to the first priority of the company to invest in any company.
Q 1.3
Working Capital Management (WCM)
Working capital refers to how efficiently a company uses its current assets in the business to make more inventories in the industry. As per the information provided by Pambudi et al. (2021), the business when using effectively all the current assets it can easily enhance capital in the business. Moreover, the business has more inventories so all the demands of the customers can be fulfilled. The scenario consists of two companies one is PURECARE SOLUTIONS and another one company is KINDRA PROPERTIES. The first company has more current assets and the other company has assets that are more non-current. Based on the opinion of Sitompul and Khadijah (2020), the current assets refer to trade receivables and cash of the company that deposit in the bank.
The company can use its current assets as per the requirement so if any unpredicted situation has arisen the business can face it. Working capital management is better in PURECARE SOLUTIONS as the company has more current assets and fewer current liabilities. It assists the company to make some cash reserve in the business to meet the unexpected situation that arises in the business. As per the view of Chen et al. (2021), it is observed that, good working capital in the business refers to the company that has more current assets in the industry. Moreover, in this scenario, the first company has more current assets so the company stated that the company has effective working capital.
Q 1.4
| Particulars | Pure Care Solutions Ltd | Kindra Properties Ltd |
| Debt | The company can provide debt to Purecare Solution and charge a fixed rate of interest from the company. In addition to this, the situation of the company is also good so the company can easily repay the loan amount and the interest amount is not a bad debt for the company. | The gross profit margin of the company is good so the business can also provide debt to the company. As per the discussion of Rikkinen et al. (2020), the company when properly uses all the debt can easily increase the total revenue of the business it assists to increase profits in the business. |
| Equity | The company can also be a partner of the company by investing in the equity fund of the company. The interest rate in this investment is not fixed. As per the discussion of Wang et al. (2021), the company can generate a good profit from the investment and the company can also do partnership business. | The financial analysis reflects that the overall position of the company is appropriate. Therefore, the business can invest in the company and make a partner of the company. As per the information provided by Bitoleuova et al. (2020), the partnership business can assist the company to generate more profit from the existing business as well as increase the profitability of the investing company. |
The various types of investment consist of various types of risk and profitability so the company can invest after analyzing the risk and rewards properly.
Debt
Debt is one of the safest ways to invest in any one company as the amount of risk in this type of investment is low. In addition to this, the time of providing the loan as a debenture the company can get the payment first. As per the discussion of Hasibuan and Handriyani (2023), the company that wants to take a minimum risk and invest in the company has first try to provide a loan at a fixed rate of interest.
Equity
The company when investing in another company in the way of equity takes a huge risk on the amount and the company can also gain maximum profits from the investment. As per the discussion of Leng et al. (2021), Equity investing makes the owner of the company so many types of profits and losses directly faced by the company.
Recommendation
Recommendation 1 for Purecare Solution
The company has good capital management so the company can get a good valuation when funds are raised on equity method. Moreover, the company can first try to raise funds from equity as it has a good option for the company.
Recommendation 2 for Kindra Properties Ltd
The company has a good value of fixed assets so it can provide easy collateral to the banks so the best way to raise funds for the company is bank debt. The company can easily take this loan and easily repay the interest and principal amount by investing the amount in good projects.
Question 2
Part A
i)
| Wheelchairs | Hoists | Mobile Beds | Total | ||
| Units sold | 60.00 | 75.00 | 120.00 | ||
| Turnover | € 33,600.00 | € 47,250.00 | € 56,400.00 | € 137,250.00 | |
| Costs | |||||
| Direct Material | € (7,728.00) | € (25,042.50) | € (27,636.00) | € (60,406.50) | |
| Direct Labour | € (5,712.00) | € (14,647.50) | € (14,100.00) | € (34,459.50) | |
| Other Variable Expenses | € (3,024.00) | € (9,450.00) | € (5,640.00) | € (18,114.00) | |
| Fixed Overheads | € (11,560.00) | € (25,840.00) | € (30,600.00) | € (68,000.00) | |
| Total cost | € (28,024.00) | € (74,980.00) | € (77,976.00) | € (180,980.00) | |
| Profit /(Loss) | € 5,576.00 | € (27,730.00) | € (21,576.00) | € (43,730.00) | |
| Contribution | € 17,136.00 | € (1,890.00) | € 9,024.00 | € 24,270.00 | |
| Contribution per unit | € 0.51 | € (0.04) | € 0.16 | ||
Table 2: Calculation of Contribution per unit (Source: Self-created)
The above table represents the contribution per unit of the products. As stated by Jacobs et al. (2021), contribution per unit assists the company in knowing how a product contributes to the total profitability of the company. As per the discussion of Finkelstein and Hendren (2020), the company when observing the profit can focus on the products that produce a good profit as it assists the company to develop its business.
The contribution per unit for the first product is 0.51, for the second product, the cost is (0.04), and for the last product, the price is 0.16. It reflects that the first product contributes most to the profits so the company can first focus on the development of the first product so the maximum sales can generate for the product. In addition to this, the company cans least focus on the second product as it provides the lowest profit so enhancement of these sales cannot be beneficial for the company.
ii)
| Statement of marginal cost | ||||
| Wheelchairs | Mobile Beds | Total | ||
| Units sold | € 120.00 | € 240.00 | ||
| Turnover | € 67,200.00 | € 112,800.00 | € 180,000.00 | |
| Costs | ||||
| Direct Material | € (15,456.00) | € (55,272.00) | € (70,728.00) | |
| Direct Labour | € (11,424.00) | € (28,200.00) | € (39,624.00) | |
| Other Variable Expenses | € (6,048.00) | € (11,280.00) | € (17,328.00) | |
| Fixed Overheads | € (23,120.00) | € (61,200.00) | € (84,320.00) | |
| Total cost | € (56,048.00) | € (155,952.00) | € (212,000.00) | |
| Profit /(Loss) | € 11,152.00 | € (43,152.00) | € (32,000.00) | |
| change in cost | € 28,024.00 | € (77,976.00) | € (31,020.00) | |
| change in units | € 60.00 | € 75.00 | € 120.00 | |
| Margin cost | € 467.07 |
Table 3: Margin cost statement if Hoists did not produce (Source: Self-created)
The margin cost of the product decreased to 258.5 if the company did not produce the Hoists.
iii)
| Statement of marginal cost | ||||
| Wheelchairs | Hoists | Total | ||
| Units sold | € 120.00 | € 150.00 | € 270.00 | |
| Turnover | € 67,200.00 | € 94,500.00 | € 161,700.00 | |
| Costs | ||||
| Direct Material | € (15,456.00) | € (50,085.00) | € (65,541.00) | |
| Direct Labour | € (11,424.00) | € (29,295.00) | € (40,719.00) | |
| Other Variable Expenses | € (6,048.00) | € (18,900.00) | € (24,948.00) | |
| Fixed Overheads | € (11,560.00) | € (25,840.00) | € (37,400.00) | |
| Total cost | € (44,488.00) | € (124,120.00) | € (168,608.00) | |
| Profit /(Loss) | € 22,712.00 | € (29,620.00) | € (6,908.00) | |
| change in cost | € 16,464.00 | € 49,140.00 | € 90,632.00 | |
| change in units | € 60.00 | € 75.00 | € 255.00 | |
| Margin cost | € 274.40 | € 655.20 | € 355.42 |
Table 3: Margin cost statement if Mobile Beds did not produce (Source: Self-created)
iv)
The margin cost analysis refers to the fact that the production of Mobile Beds is beneficial for the company apart from the production of Hosist. The production per unit of Hosist is costlier for the company and it did not provide a good margin so the company can focus on producing Mobile Beds.
v)
Absorption costing refers to calculating all the costs of the product that are expended by the company to manufacture the product. As stated by Brown et al. (2020), it is a part of marginal costing as it also assists the company to observe the cost of manufacturing one additional unit of product. In addition to this, the cost is helped to analyse all the costs as all costs are not appropriate for the company. As per the information provided by Chugunov and Makohon (2020), it assists the company to decrease the unnecessary cost of that expense in producing the products.
Part B
| CASH FLOWS analysis | ||||||
| DISCOUNTING RATE | 12% | |||||
| Accounting Years | Alpha and beta stock | DISCOUNTING FACTOR | Discounted cash flow | Cumulative Cash flows | Discounted Cash Flows | Cumulative DCF |
| 0 | € (296,600.00) | € 1.00 | € (296,600.00) | € (296,600.00) | € (296,600.00) | € (296,600.00) |
| 1 | € 196,000.00 | € 0.89 | € 175,000.00 | € (121,600.00) | € 175,000.00 | € (121,600.00) |
| 2 | € 199,920.00 | € 1.79 | € 357,000.00 | € 235,400.00 | € 159,375.00 | € 37,775.00 |
| 3 | € 203,918.40 | € 2.68 | € 546,210.00 | € 781,610.00 | € 145,145.09 | € 182,920.09 |
| 4 | € 207,996.77 | € 3.57 | € 742,845.60 | € 1,524,455.60 | € 132,185.71 | € 315,105.80 |
| a) PAYBACK PERIOD | 1.34 | |||||
| b) Discounted Payback period | 1.74 | |||||
| c) NPV | 1524455.60 | |||||
| d) ARR | 68% | |||||
| e) IRR | 56% | |||||
| f) Profitability Index (PI) | 6.14 |
Table 4: Cash flow analysis of new stock (Source: Self-created)
- i) Net present value of the investment is 1524455 and it refers that the business can earn by investing in the project so the company can invest in the project to generate maximum profits in the business.
- ii) Payback period of the project is 1.74 it refers that in approximately less than 2 years the company is able to generate profit from the business.
iii) Internal rate of return for the project is 56% and the return is appropriate according to the nature of the business.
- iv) The various types of the analysis indicate that the investment policy can fulfil all the demands of the business. In addition to this, the profit of the project is appropriate so it can be a good investment for the company and the company can take risks in the project.
- v) The calculation of NPV fully depends on the assumption as the cash flow statement that is prepared in the project is based on the profits that can be generated by the company. As per the view of Carras et al. (2020), the assumption of the company is if wrong the profit margin of the company can change. Therefore, the company can take the assistance of risk analysis that assists to evaluate the different types of risk that consist in the projects.
Question 3
3.1 Margin costing technique
| Metal | Pink | Zinc | Total | ||||
| Amount | Units | Amount | Units | Amount | Units | ||
| High | 70000 | 8000 | 49000 | 6000 | 130000 | 6700 | |
| Low | 67200 | 7500 | 48000 | 5000 | 90000 | 4300 | |
| Difference | 2800 | 500 | 1000 | 1000 | 40000 | 2400 | |
| Variable Overhead per unit | 5.6 | 1 | 16.67 | ||||
| Total variable overhead | 42000 | 5000 | 71681 | ||||
| Fixed overhead | 25200 | 43000 | 18319 | 86519 |
Table 5: Margin cost analysis (Source: Self-created)
The analysis refers to the first product of the company being Metal as the marginal cost of the product is minimal so the product can provide maximum benefits to the company. The high-low method assists to find the different types of cots that include in the production of the products. Therefore, the business can easily observe the profits and losses that occur due to the production of a certain unit of product.
Based on the opinion of Jiang et al. (2022), variable overheads in the company arises as the production increase as well as it also decreases if the production of the company gets decrease. Apart from this, fixed overheads occur every year it did not depend on the production unit. Therefore, the company always first focuses to recover the fixed cost of the products by the profits of the products. It assists the company to recover the amount invested in the company and it provides benefits to the shareholders of the business.
The marginal cost of the income statement indicated that, the changes in the total productions cost as a result of the total productions unit. The marginal cost statements help to evaluate the total volumes of the total output rages. The marginal cost helps to evaluate the total amount of the inventory in the business organizations.
3.2 Budgeted cash flow
| Budgeted cash flow of all products | |||||
| Metal | Pink | Zinc | Total | ||
| sales unit | 8000 | 8000 | 9000 | 25000 | |
| Revenue | 202667 | 256000 | 941860.7 | 1400528 | |
| cost | 163,000 | 148,500 | 542,000 | 853500 | |
| Cost of extra unit | (9000) | 199333.3 | 190333.3 | ||
| Total cost | 163000 | 157,500 | 741,333 | 1061833 | |
| Profit | 39667 | 98500 | 200527.4 | 338694.4 | |
Table 6: Budgeted cash flow of Metal, Pink and Zinc (Source: Self-created)
The budget analysis assists to calculate the profits that can be generated from the projects. As per the information provided by Torok and Sipos (2022), the companies when observing the profits in an effective way can enter in the project in a better way and if the projects are not benefiting the company cannot enter into the project. As per the view of Donaldson and Mitton (2022), the overall profitability of the company can enhance when the companies prepare a budget for every project.
In addition to this, it also assists the business to maximize the profits as some budget can be more beneficial to the company and the company can always enter into a more beneficial project. The profit growth rates of these metal units will be low. The cash flows of the pinks product is that 98500, that is the low. The profit rates of the Zinc products are that, 2000527. That is the high values, on the other hand, total values of the cash flows has indicated that, 338694.4
3.3 Qualitative issues for the production
The calculation assists the company to observe the profits from the current situation as all prices are set according to the current prices. As stated by Yang et al. (2020), the change in prices can change the profitability of the company as well as inflation rates also harm the projects. As per the view of Pasquali et al. (2020), the inflation rate is one of the biggest problems for the company as it changed due to some circumstances. In addition to this, the absorption of the inflation rate is not a simple task for the companies as it depends on various situations. The company can purchase the material after approving the project; it assists the company to beat the inflation rate.
3.4 Significance of budgeting
The budgeting process assists the companies to evaluate profits in an effective way as it wholly analyses the cost. As per the information provided by Vernazza et al. (2023), it also assists the companies to set a good price for the product, as it is one of the difficult tasks for the company. Moreover, the companies when charged a high price can go to other companies to get a good deal. Apart from this, the companies when charged a low amount the customer base can increase but the profitability of the company decreases. The company works in the market to generate profits and the time it decreases it is not a good part of the business.
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