Assignment help_Analysis of Financial Statements


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]INTO MANCHESTER – IFY BUSINESS STUDIES

Assessment type: Coursework 2

Intake 1.0 (Students finishing June 2017)

Overall weighting: 10 per cent of the final mark

Date assignment set: Wednesday March 22nd 2017

Date assignment due:  April 19th  at 23:59

Introduction to Coursework 2

This assignment will involve you researching into the area of ratio analysis and the financial performance of a business (1250-1500 words excluding appendices and bibliography).

The coursework assignment will be made up of a business report.

Sections from the NCUK syllabus 2016-17:

Section J: Business Finance

Section M: Analysis of Financial Statements

Section N: Managing Cash Flows

 

You will need to demonstrate the following skills

  • Study skills
  • Discussion skills
  • Analytical skills
  • Evaluation skills

 

 

 

 

 

 

Assignment Brief – Cullen Manufacturing Ltd

 

Cullen Manufacturing Ltd produces a range of saucepans and cooking pots. The manufacturing process is noisy and results in waste products that cannot be reused. The saucepans and pots are sold mainly online. Since becoming managing director of the family business four years ago, John Cullen has taken the following decisions:

  • New machinery has been purchased. This led to higher than expected staff-retraining costs. Half of the necessary finance was borrowed. The government recently announced higher interest rates to deal with inflation.
  • Cheaper raw materials and components were brought in, with orders taking place only twice a year. This was designed to maximise scale economies.
  • Advertising and promotional expenses were doubled in efforts to increase sales.
  • Payments to suppliers have been delayed in order to improve cash flow.

Despite these changes, the overall performance of the business is not encouraging. John has asked the company accountant to prepare a ratio analysis of key performance indicators for the last three years. Table 1 below shows the results.

  2014 2015 2016
Return on capital employed (%) 15 9 7
Gross profit margin (%) 38 42 43
Operating profit margin (%) 20 15 12
Inventory turnover (days) 5 4 3
Current ratio 2 1.5 1.4
Acid-test ratio 1.5 0.9 0.4

Table 1: Cullen Manufacturing Ltd: Ratio analysis of accounts 2014-2016

 

 

John is determined to take further action to improve the prospects of the business. He is now working on two further strategies:

Strategy 1: His first idea is to increase the prices of the most popular range of saucepans and pots. This will aim these products at higher-income segments of the market. John believes this should help to improve profitability.

Strategy 2: His second plan is to relocate the factory away from its expensive site near the city centre. This site could be sold and a new factory on the edge of the city would be built. This should lower production costs in the long term. The new site is about 20 kilometres from the present location. It is near good roads but close to a school and a park. John believes that the main stakeholders in the business such as workers, shareholders, customers, local residents and the government would benefit from this move.

TASK: Business Report on Cullen Manufacturing Ltd

As a business advisor, you have been asked to write a report on Cullen Manufacturing Ltd. Your report is structured in two sections.

SECTION 1:

Section 1.1 Assessing Cullen Manufacturing Ltd’s financial performance

Using the data from Table 1 and the case study, analyse the possible reasons for the changing performance of the business over the last three years.

Section 1.2 Explaining Cullen Manufacturing Ltd’s problems

Explain the problems this business might experience from:

  • Declining liquidity
  • Declining inventory turnover ratio

Total for this section: 500 Words 

 

SECTION 2:

Improving Cullen Manufacturing Ltd’s profitability

Discuss which of the strategies suggested by John would be the most effective for increasing profitability.

Total for this section: 1000 Words

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