PGBM01: Prepare a report for the Board of GP Electrical Plc that evaluates the performance of GP Electrical in relation to profitability liquidity gearing asset utilisation and investor potential: Finance Management & Control UOS, UK

Dec 11, 2023

University

Subject Finance Management & Control

This assessment is in three parts, please answer all elements.

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Please note that this is an individual assignment and the policy of the University on “Policy on Cheating, Collusion, and Plagiarism” applies.

Please write your Tutor’s name clearly on the front of the assignment.

Part A – GP Electricals Plc

You are a financial analyst at GP Electricals Plc; a public limited company specializing in manufacturing and distributing electrical generators. The Board of Directors have looked into the financial statements of the company for the last two years and have raised concerns regarding both the company’s profitability and liquidity. The financial statements of GP Electricals for the last two years are given below:

Statement of Comprehensive Income for the year ended 31 December

2019 2018
£000 £000 £000 £000
Revenue 38,550 29,950
Less: Cost of sales:
Opening Inventory 3,875 4,535
Manufacturing costs 22,140 13,250
26,015 17,785
Less: Closing Inventory (6,225) (19,790) (3,875) (13,910)
Gross profit
18,760 16,040
Less: Expenses
Selling & distribution expenses 8,135 4,380
Administrative expenses 2,100 990
Bad debts are written off 1,040 (11,275) 565 (5,935)
Operating profit
7,485 10,105
Less: Interest payable (1,690) (380)
Profit before tax 5,795 9,725
Less: Income tax (900) (1,920)
Profit after tax 4,895 7,805
Less: Dividends paid (2,100) (2,100)
Retained profit for the year 2,795 5,705
Statement of Financial Position as of 31 December
2019 2018
Non-current assets (net) £000 £000 £000 £000
Land and building 24,590 19,280
Equipment 4,380 3,200
Motor vehicles 1,900 1,650
Current assets 30,870 24,130
Inventory 6,225 3,875
Trade Receivables 5,900 4,500
Cash 0 560
Current liabilities 12,125 8,935
Trade Payables (5,100) (4,885)
Taxation (1,200) (1,490)
Bank overdraft (2,180) 0
Net current assets 3,645 2,560
Non-current liabilities 34,515 26,690
Loan stock (4,575) (1,250)
29,940 25,440
Equity
Ordinary shares of £1 each 26,035 24,330
Accumulated profit 3,905 1,110
29,940 25,440

Required:

Prepare a report for the Board of GP Electrical Plc. that evaluates the performance of GP Electrical in relation to profitability, liquidity, gearing, asset utilisation, and investor potential. Your report must be supported by the calculation of relevant ratios in the five evaluation areas mentioned above.

  1. Calculate the Working Capital Cycle in days for GP Electrical Plc based on the information above, assuming 365 days, for the years 2019 and 2018 AND briefly comment on the company’s liquidity position in 2019 compared to 2018. (round to the
  2. Critically evaluate the limitations of using ratio analysis for both cross-sectional andnearestday) time-series comparisons.

All calculations should be clearly shown including all appropriate workings and should be made to the nearest £000 or two decimal places where required.

Total for Part A: 40%

Part B – Venmac Ltd

Venmac Ltd is specialized in producing and selling ventilator machines. In 2019, the

manufacturing cost per unit included: £
Direct material 125
Direct labour (20 minutes per unit) 15/hour
Variable manufacturing overhead 20
Variable selling expenses 15
Variable administrative expenses 10
Fixed costs for the year ended 31 December 2020 were: £000
Fixed manufacturing 1,650
Fixed selling and distribution 2,850
Fixed administrative 930

The company produced and sold 45,000 units at £300 per unit.

In 2019, management has decided to increase the selling price by 20% and to maintain the same contribution margin ratio as last year. This increase in price is to meet an increase of £1,450,000 in fixed costs in 2019. The company has produced and sold the same quantity in 2020 as last year.

Required:

  • Calculate the break-even point and margin of safety in both units and revenue for the two years, 2019 and 2020, and briefly analyze the results.
  • Critically evaluate the key assumptions that underpin the break-even model, assessing and analyzing whether the model can be applied within the context of today’s global business environment.

Total for Part BAll calculations should be clearly shown including all appropriate workings and should be made to the nearest £000 or two decimal places where required.

Part C

Required:

  1. Financial managers can fund potential investments and expansion plans by accessing a range of different sources of finance. Explain and critically evaluate a single source of both internal and external finance that could be used by companies to finance further investment programs.
  1. (Hall, Lovallo and Musters, 2012)“Most companies allocate the same resources to the same business units year after year. That makes it difficult to realize strategic goals and undermines performance”.

Required:

Critically evaluate the use of zero-based budgeting as a means of addressing the above problem in a challenging business environment. You are encouraged to use illustrative examples, to support your discussion.

Total for Part C:

Notes:

  1. To obtain a high mark, you should
  2. Make your report concise, precise and well presented and structured
  3. Draw logical conclusions from accounting information;
  4. Synthesize information in a coherent and useful way;
  5. Show evidence of key text and background reading;
  6. Incorporate your knowledge into an integrated piece of work;
  7. Demonstrate a critical understanding of financial management.
  8. A Harvard standard referencing is required for the report

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