Posted: September 17th, 2017

Accounting for Managers

Accounting for Managers

Purpose of the Assessment

The purpose of this assignment is to test communication skills together with the ability to analyse, to interpret and to report. This assignment will also encourage research and investigation.

Assessment Task

The case study consists of two sections- Section A consists of 70 marks and Section B consist of 30 marks. Students are expected to read the case study thoroughly and to answer all the required questions in a structured and organised manner with reference to published work. This is an individual assignment and it is worth 60% of the total module mark.

Question 1

The following financial datais fortwo telecommunications companies thatare listed on the London Stock Exchange.

1.    BT Group
BT Group plc
Annual Ratios
[GBP Millions]
31-Mar-2015    31-Mar-2014    31-Mar-2013    31-Mar-2012    31-Mar-2011
Financial Strength
Current Ratio    0.97    0.74    0.61    0.49    0.56
Quick/Acid Test Ratio    0.93    0.64    0.51    0.38    0.45
Working Capital    -237.0    -1,981.0    -2,930.0    -4,724.0    -3,100.0
Long Term Debt/Equity    9.74    -13.41    -31.59    5.81    4.87
Total Debt/Equity    12.09    -16.58    -38.22    8.02    5.12
Long Term Debt/Total Capital    0.74    0.86    0.85    0.64    0.80
Total Debt/Total Capital    0.92    1.06    1.03    0.89    0.84
Pay-out Ratio    46.79%    42.45%    38.20%    36.69%    38.18%
Effective Tax Rate    19.28%    12.72%    15.85%    17.17%    12.41%
Total Capital    10,576.0    9,222.0    9,751.0    11,794.0    11,781.0

Efficiency
Asset Turnover    0.69    0.73    0.75    0.82    0.77
Inventory Turnover    45.99    45.68    41.41    43.10    32.81
Days In Inventory    7.94    7.99    8.81    8.47    11.13
Receivables Turnover    6.34    7.53    7.03    6.99    6.62
Days Receivables Outstanding    57.56    48.47    51.90    52.24    55.12
Revenue/Employee    –    208,280    208,635    217,944    216,803
Operating Income/Employee    –    33,144    32,184    31,360    27,840
EBITDA/Employee    –    63,838    64,528    64,753    60,011

Profitability
Gross Margin    77.33%    76.90%    76.63%    75.00%    81.37%
Operating Margin    17.82%    15.91%    15.43%    14.39%    12.84%
EBITDA Margin    32.04%    30.65%    30.93%    29.71%    27.68%
EBIT Margin    17.82%    15.91%    15.43%    14.39%    12.84%
Pre-tax Margin    14.82%    12.64%    12.62%    10.93%    8.55%
Net Profit Margin    11.96%    11.04%    10.62%    9.05%    7.48%
COGS/Revenue    22.67%    23.10%    23.37%    25.00%    18.63%
SG&A Expense/Revenue    23.44%    24.91%    25.43%    24.96%    33.14%

Management Effectiveness
Return on Assets    8.20%    8.11%    7.98%    7.40%    5.76%
Return on Equity    1,976.85%    -472.60%    372.47%    108.63%    -414.34%

Valuation
Free Cash Flow/Share    0.28    0.31    0.36    0.13    0.25
Operating Cash Flow/Share    0.57    0.61    0.67    0.46    0.59

Current Market Multiples
Market Cap/Earnings (TTM)    17.74
Market Cap/Equity (MRQ)    46.74
Market Cap/Revenue (TTM)    2.12
Market Cap/EBIT (TTM)    10.12
Market Cap/EBITDA (TTM)    6.02
Enterprise Value/Earnings (TTM)    20.47
Enterprise Value/Equity (MRQ)    53.93
Enterprise Value/Revenue (TTM)    2.44
Enterprise Value/EBIT (TTM)    11.67
Enterprise Value/EBITDA (TTM)    6.95

2.    Vodafone
Vodafone Group plc
Annual Ratios
[GBP Millions]
31-Mar-2015    31-Mar-2014    31-Mar-2013    31-Mar-2012    31-Mar-2011
Financial Strength
Current Ratio    0.69    0.99    0.76    0.83    0.63
Quick/Acid Test Ratio    0.67    0.87    0.63    0.65    0.48
Working Capital    -9,050.0    -317.0    -6,720.0    -4,000.0    -10,072.0
Long Term Debt/Equity    0.34    0.30    0.38    0.37    0.32
Total Debt/Equity    0.53    0.36    0.50    0.44    0.40
Long Term Debt/Total Capital    0.22    0.22    0.25    0.26    0.23
Total Debt/Total Capital    0.35    0.27    0.33    0.30    0.28
Payout Ratio    52.11%    33.10%    -119.21%    77.52%    58.56%
Effective Tax Rate    -435.16%    –    –    17.01%    17.14%
Total Capital    101,203.0    96,482.0    107,280.0    110,543.0    122,177.0

Efficiency
Asset Turnover    0.35    0.29    0.27    0.27    0.30
Inventory Turnover    66.92    70.38    63.33    53.18    63.53
Days In Inventory    5.45    5.19    5.76    6.86    5.75
Receivables Turnover    5.32    6.33    6.30    5.82    8.00
Days Receivables Outstanding    68.63    57.65    57.96    62.73    45.62
Revenue/Employee    –    413,158    416,787    449,458    547,137
Operating Income/Employee    –    -42,160    -24,126    65,043    66,729
EBITDA/Employee    –    39,294    48,854    142,857    160,645

Profitability
Gross Margin    26.87%    27.13%    30.16%    29.93%    32.84%
Operating Margin    4.66%    -10.20%    -5.79%    14.47%    12.20%
EBITDA Margin    27.43%    9.51%    11.72%    31.78%    29.36%
EBIT Margin    4.66%    -10.20%    -5.79%    14.47%    12.20%
Pretax Margin    2.59%    -13.74%    -9.16%    10.67%    20.70%
Net Profit Margin    13.51%    29.07%    -11.05%    8.74%    17.37%
COGS/Revenue    73.13%    72.87%    69.84%    70.07%    67.16%
SG&A Expense/Revenue    21.79%    18.98%    18.45%    17.48%    18.24%

Management Effectiveness
Return on Assets    4.80%    8.70%    -2.85%    2.37%    5.11%
Return on Equity    8.33%    15.67%    -5.66%    4.13%    8.96%

Valuation
Free Cash Flow/Share    0.03    -0.02    0.04    0.16    0.12
Operating Cash Flow/Share    0.37    0.24    0.33    0.38    0.43

Current Market Multiples
Market Cap/Earnings (TTM)    11.84
Market Cap/Equity (MRQ)    1.02
Market Cap/Revenue (TTM)    1.59
Market Cap/EBIT (TTM)    30.57
Market Cap/EBITDA (TTM)    5.69
Enterprise Value/Earnings (TTM)    16.40
Enterprise Value/Equity (MRQ)    1.41
Enterprise Value/Revenue (TTM)    2.21
Enterprise Value/EBIT (TTM)    42.34
Enterprise Value/EBITDA (TTM)    7.89

You are required to:

(a)    Select and justify at least 10 financial ratios and calculate 2 non-financial ratios to analyse the performance and financial position of the twocompanies.

You are expected to use charts to compare performance of the two companies. You will need to look at the audited financial statement and carry out further research to explain the performance of the company over the five years.

For clarity, you are expected to rank the companies based on the individual benchmarks and overall.                 (50 Marks)

(b)    Write a memo to the managing director of the number two (poor performing) company with recommendations of how the financial performance of the business can be improved.         (15 marks)

(c)    Outline the limitations of relying on financial ratios to interpret firm performance?                            (5 Marks).

You are expected to research for more information on the companies and cite the material correctly. You can use the Global Business Browser database to access analysts’ and SWOT reports.

Question2: Investment Appraisal

Wesley Mills Plc is considering expanding its production of a new component use in one of its products. The plant is expected to cost £1,000,000 and have a life span of five years and a nil residual value. It will be bought, paid for and ready for operation on 31 December 2015. £500,000 has already been spent on development costs of the product, this has been charged in the income statement in the year it was incurred.
The following results are projected for the new component:

Year 1    Year 2    Year 3    Year 4    Year 5
£000    £000    £000    £000    £000
Sales Revenue    1,200    1,400    1,400    1,400    1,400
Costs, including dep’n    (1,000)    (1,100)    (1,100)    (1,100)    (1,100)
Profit before tax    200    300    300    300    300

Tax is charged at 30% on annual profits (before tax and depreciation) and paid one year in arrears. Depreciation of the plant has been calculated on a straight line basis. Additional working capital of £600,000 will be required at the beginning of the project and released at the end of year 5.
You should assume that all cash flows occur at the end of the year in which they arise.

You are required to:

1.    Prepare a statement showing the incremental cash flows of the project over the life of the project.                                                                (10 Marks)
2.    Compute the net present value of the project using a 10% discount rate
(5 Marks)
3.    Compute the payback period to the nearest year, explain the meaning of this term                                (5 Marks)
4.    Discuss the limitations of using investment appraisal techniques to aid long term decision making                    (10 Marks)

(Total 30 marks)

ADDITIONAL GUIDANCE
1.    All calculations must be detailed and presented clearly.
2.    Use of published work (citing references) within text is expected.
3.    A full list of references should be presented at the end of the case study.
4.    Please avoid the use of ‘I, We, Us’ in your case study. You are expected to write in third person.
5.    Include the assignment front sheet  which is attached to the assignment brief.
6.    Your answer should not repeat the question as it will be included in your word count.
7.    Formatting:
a.    Font Type: Arial.
b.    Font size 11/12.
c.    Line spacing 1.5 to 2.
d.    All pages must be numbered
e.    All graphs, charts and tables should have a number and a title.
f.    All text must be aligned to the left.
8.    Good use of English, referencing, presentation will earn marks.
9.    Submit online and on time, late submissions will not be accepted.
10.    For extensions or deferral of assessment, please refer to the University policy on mitigating circumstances.

Accounting and Finance Penalties
1.    Word Count*: All assessments have a word count with a tolerance of 10% only. Submissions that exceed the word count will be penalised as follows-one grade point* for every 150 words or part thereof.
2.    Missing References – penalty is three grade points minimum (see module guide for further details).
3.    Front sheet missing-penalty one grade point.
4.    Word count missing or inaccurate-penalty one grade point.
** Front sheet, contents page, references and any appendices do not count in the word count.